Finance Numericals

 Geometric average return: It is an average rate of return that includes the compounding effects in multiple periods. Formula: GAR = (((1+R 1 )* (1+R 2 )*(1+R 3 )*(1+R 4 )....(1+R n ))^1/n) -1 Arithmetic return: It is an average of set of data of different periods. It is calculated by adding the return of some period and then dividing the number with the number of data. Formula: AR = (R 1 +R 2 +R 3 +R 4 ....R n )/n AR =Arithmetic return R 1 +R 2 +R 3 +R 4 ....R n = Rate of return N = Number of observations Example: Find out the Average return of 4 years rate of return in a given data: Year Rate of return 1 3.5% 2 -2.9% 3 6% 4 8.5%   Solution: The average return of 4 years rate of return: AR = (R 1 +R 2 +R 3 +R 4 )/n = (3.5+ (-2.9)+6+8.5)/4 = 3.775% AR = Arithmetic return N =Number of periods Example: There are two stock are given Stock A and