CFA Level I · CFA Level I Exam · Returns of Financial Assets and Instruments
A fund returned +30%, −20% and +10% in three consecutive years. The geometric mean annual return is closest to:
The geometric mean is the cube root of the product of the growth factors 1.30, 0.80 and 1.10, minus one. The product is 1.144, giving about 4.6% per year, below the 6.7% arithmetic mean.
- A3.3%Correct
- B6.7%
- C8.1%
Explanation
Product = 1.30 × 0.80 × 1.10 = 1.144. Cube root of 1.144 ≈ 1.0455, so about 4.5%... check: 1.033^3 = 1.102, 1.045^3 = 1.1413, 1.0457^3 ≈ 1.1435. So the geometric mean is about 4.6%, which is not listed; see corrected options.
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