An investor bought an IBM stock 6 years ago for 950 His rate

An investor bought an IBM stock 6 years ago for $950. His rates of return are as follows: year 1: -24%, year 2: 17%, year 3:48%, year 4: 89%, year 5: -39%, and year 6: 18%. What is the geometric annual rate of return on this investment?

Solution

r1 = -.24

r2 = .17

r3 = .48

r4 = .89

r5 = .39

r6 = .18

Geometric rate of return on this investment: (( 1-.24)(1+.17)(1+.48)(1+.89)(1+.39)(1+.18))^1/6

Geometric rate of return is r rate = 26.47%