NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
A portfolio has returned 12%, 18%, and 6% in three successive years respectively. What is its arithmetic average annual return?
The arithmetic average annual return is 12%. Add the three yearly returns of 12%, 18% and 6% to get 36%, then divide by three years. The 36% figure is merely the total, not the average.
- A10%
- B12%Correct
- C14%
- D36%
Explanation
Arithmetic mean = (12 + 18 + 6)/3 = 36/3 = 12%. The figure 36% is just the sum of returns, not the average. The geometric mean would be slightly lower than 12%, so it is not the arithmetic average.
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