NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
A portfolio has returns of 10%, 14% and 18% in three years. What is its arithmetic average annual return?
The arithmetic average annual return is 14%. It is found by adding the three annual returns, 10%, 14% and 18%, to get 42% and dividing by three years. Using the sum alone would overstate the average.
- A12%
- B14%Correct
- C16%
- D42%
Explanation
Arithmetic mean = (10 + 14 + 18)/3 = 42/3 = 14%. The 42% option is the sum and was not divided by three. The 12% and 16% options are not the mean of the three returns.
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