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Hi, I have this question in my finance class and I can't seem to get the correct answer.
"Compute the geometric average of the following rates of return: 10%, -20%, -10%, and 20%"

I multiplied (.1*.2*-.1*-.2)=.0004 and took the 4th root of that and got 0.141421

Apparently, the correct answer is -1.26%.

Can someone tell me where I went wrong? Thanks
Guest Feb 16, 2012
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Never mind, I figured it out.

I had to use (1+.1)*(1+.2)*(1-.1)*(1-.2)=0.9504
4th root of .9504 = 0.98736245044883
Then our formula tells us to use 0.98736245044883-1= -.0126 or -1.26%
Guest Feb 16, 2012

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