test prep, question on average rate of return for BET from a table of annual returns

Question

I am in a graduate level finance class, trying to do some test study questions and the formulas for this aren't even in the book and I can't figure out how to go about solving this. I can't even figure out what ALEF and BET mean. Can you please help?

The table summarizes annual returns:

YEAR    ALEF      BET
1       26.1      2.6
2        3.2      10.8
3        -5       33.6
4       -0.7      16.5
5       6.1        14.4
Estimate the average return for BET.
answer should be in % form with two decimal places.

this is NOT covered in the textbook or the course workbook nor is it in the lectures/class notes. My professor is out of the country. Please help!

 

Answer 1

I would suggest estimating the average annual return for BET by assuming a $1 initial investment, multiplying it by the listed annual returns for each year, and then taking the fifth root of the result.  So  

 

Total return = 1*(1.026)*(1.108)*(1.336)*(1.165)*(1.144) = 2.024163219  

 

The fifth root of this is 1.15146, so the average annual return is about 15.15%  

 

By the way, ALEF and BET are the first 2 letters of the Hebrew alphabet.  They are probably just being used here as placeholders for fictitious company names or stock ticker symbols