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Question:

A researcher has collected a sample of annual total returns on an index portfolio for U.S. large capitalization equity securities over the past five years of 11%, 5%, -13%, 8%, and 9%. Based only on this information, the best estimate of the holding period return to be earned by investing in this index over the next two years is closest to:

A 7.3%.
Explaination

For investment horizons of over one year, the geometric mean return over the five years is the best estimator. Geometric mean return = $2047_w369_h26.png$. For a 2-year holding period the expected return is then $1134_w180_h22.png$