You have found an asset with a 1290 percent arithmetic avera

You have found an asset with a 12.90 percent arithmetic average return and a 10.30 percent geometric return. Your observation period is 40 years. What is your best estimate of the return of the asset over the next 5 years? 10 years? 20 years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the \"%\" sign in your response.)

Solution

arithmetic average

year 5

12.90 / 5 = 2.58%

year 10

12.90 / 10 = 1.29%

year 20

12.90/ 20 = 0.645%

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geometric return

year 5

10.30 ^1/5 = 1.59%

year 10

10.30^(1/10) = 1.26%

year 20

10.30^(1/20) = 1.12%