Compute the annualized geometric and arithmetic returns

Reference no: EM13477115

Sally is reviewing the performance of several portfolios in the family trusts. Trust A is managed by Wall Street Investment Advisors and Trust B is managed by LaSalle Street Investment Advisors. Both trusts are invested in a combination of stocks and bonds and have the following returns:

Trust A Trust B

Year 1 15% 12%

Year 2 10 15

Year 3 -4 -2

Year 4 25 20

Year 5 -8 -5

a. Calculate the annualized geometric and arithmetic returns over this 5-year period.

b. Which manager performed the best, and is there a significant enough difference for Sally to move her money to the winning manager?

c. Explain the difference between the geometric and arithmetic returns.

Reference no: EM13477115

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