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Question 3 [10 marks You have the following rates of return for a risky portfolio...

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Question 3 [10 marks You have the following rates of return for a risky portfolio for five consecutive years: Year 2008 2009 2010 2011 2012 Return % 15% 18% -9% -6% 10% (a) Calculate annualized arithmetic average return on this investment. 12] (b) Calculate the annualized geometric average return on this investment. (c) Calculate the value of the investment at the end of 2012 if you invested $1,000 at the beginning of 2008. [2] (d) Suggest one application of using arithmetic average and geometric average to represent an investment return respectively. Justify your suggestions. [4]

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