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Annual returns are converted to decimal multipliers whose geometric mean is 1.0167. What is the average rate of return?
AIt is 16.70 percent
BIt is 10.167 percent
CIt is 0.167 percent
DIt is 1.67 percent
Answer & Solution
Correct answer: D. It is 1.67 percent
1. A decimal multiplier of 1.0167 means the value ends each period at 1.0167 times where it started.
2. The growth part of that multiplier is found by subtracting 1.
3. That gives 0.0167, which expressed as a percentage is 1.67 percent a year.
4. Reading 16.70 percent misplaces the decimal point by a factor of ten.
_Source: OpenStax Introductory Business Statistics (CC BY 4.0), Ch 2 "Descriptive Statistics", section 2.5 Geometric Mean_
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