Hi everyone,
Hopefully a simple one???
The Problem
I have three scenarios for an investments performance over 3 years...
Sc1: 10%, 5%, -25%
Sc2: 5%, 5%, 5%
Sc3: 5%, 10%, 15%
So I've multiplied the annual returns (+1)...
Sc1: 3 Yr Return = 110% x 105% x 75% = 86.6%
Sc2: 3 Yr Return = 105% x 105% x 105% =115.8%
Sc3: 3 Yr Return = 105% x 110% x 115% = 132.8%
My question is if I want to know the average return for all three scenarios should I annualise each scenario and then take the average or average and then annualise this number (Maybe both are correct)?...
Answer 1: AVERAGE(86.8%^(1/3)-1, 115.8%^(1/3)-1, 132.8%^(1/3)-1) = 3.4%
Answer 2: AVERAGE(86.8%, 115.8%, 132.8%) ^(1/3)-1= 3.8%
Many thanks for your help.
Hopefully a simple one???
The Problem
I have three scenarios for an investments performance over 3 years...
Sc1: 10%, 5%, -25%
Sc2: 5%, 5%, 5%
Sc3: 5%, 10%, 15%
So I've multiplied the annual returns (+1)...
Sc1: 3 Yr Return = 110% x 105% x 75% = 86.6%
Sc2: 3 Yr Return = 105% x 105% x 105% =115.8%
Sc3: 3 Yr Return = 105% x 110% x 115% = 132.8%
My question is if I want to know the average return for all three scenarios should I annualise each scenario and then take the average or average and then annualise this number (Maybe both are correct)?...
Answer 1: AVERAGE(86.8%^(1/3)-1, 115.8%^(1/3)-1, 132.8%^(1/3)-1) = 3.4%
Answer 2: AVERAGE(86.8%, 115.8%, 132.8%) ^(1/3)-1= 3.8%
Many thanks for your help.