NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Risk and Return
The annual returns of a stock over three years were +20%, -10% and +10%. What is the arithmetic mean annual return?
The arithmetic mean return is 6.67%. Add the three annual returns, 20, minus 10 and 10, to get 20 percent, then divide by three years, giving approximately 6.67 percent per year.
- A6.67%Correct
- B10.00%
- C8.00%
- D20.00%
Explanation
Arithmetic mean = (20 - 10 + 10)/3 = 20/3 = 6.67%. Dividing by 2 would give 10%, a wrong divisor. The geometric mean would be lower, about 6.0%, so 8% is not correct either.
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