The Geometric Mean of the following series of returns is:0.17; -0.18; 0.02; -0.05; 0.10
Question
The Geometric Mean of the following series of returns is:
0.17; -0.18; 0.02; -0.05; 0.10
Solution
To calculate the geometric mean of a series of returns, follow these steps:
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Convert each return to a growth multiplier by adding 1. For example, a return of 0.17 becomes 1.17, a return of -0.18 becomes 0.82, and so on.
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Multiply all the growth multipliers together.
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Take the nth root of the result from step 2, where n is the number of returns in the series.
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Subtract 1 from the result from step 3 to convert back to a return.
Let's apply these steps to your series of returns:
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Convert to growth multipliers: 1.17, 0.82, 1.02, 0.95, 1.10
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Multiply together: 1.17 * 0.82 * 1.02 * 0.95 * 1.10 = 0.9227469
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Take the 5th root (since there are 5 returns): 0.9227469^(1/5) = 0.9855
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Convert back to a return: 0.9855 - 1 = -0.0145 or -1.45%
So, the geometric mean of the series of returns is -1.45%.
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