Answer:
Average annual rate of return should Louis expect to earn over the next four years is 10.7%
Explanation:
The formula we are going o use is:
[tex]Expected\ Return=\{(\frac{R-1}{N-1})*i_{g}\}+\{(\frac{N-R}{N-1})*i_{a}\}[/tex]
Where:
R is the number of years over which Louis expect to earn.
N is the number of years of average arithmetic return.
i_{g} is the average geometric return=10.50%=0.105.
i_{a} is the average arithmetic return =11%=0.11.
Solution:
[tex]Expected\ Return=\{(\frac{R-1}{N-1})*i_{g}\}+\{(\frac{N-R}{N-1})*i_{a}\}\\Expected\ Return=\{(\frac{4-1}{6-1})*0.105\}+\{(\frac{6-4}{6-1})*0.11\}\\Expected\ Return=0.107[/tex]
Average annual rate of return should Louis expect to earn over the next four years is 10.7%
