Consider an investment with the returns over 4 years as shown here:

Year. 1 2 3 4

16% 11% 10% 10%

a. What is the compound annual growth rate (CAGR) for this investment over the 4 years?

b. What is the average annual return of the investment over the 4 years?

c. Which is a better measure of the investment's past performance? If the investment's returns are independent and identically distributed, which is a better measure of the investment's expected return next year?

A) - 0.111

B) 11.75%

C) Take the first year measures for next year investment, as it gave the highest returns.

Explanation:

A) The compound annual growth rate is calculated as

(EB:BB) ^1/n - 1

EB is the ending balance

BB is the beginning balance

n is the number of years

Therefore;

(10% : 16%) ^1/4 - 1

(0.625) ^1/4 - 1 = (0.625) ^0.25 - 1

0.88914 - 1 = - 0.111

Because the growth rate is negative, that means the investment did not grow, but rather the growth dropped with - 0.111

B) The average annual return for this investment is to calculate the mean value for the of the annual returns

(16% + 11% + 10% + 10%) : 4 = 11.75%

That means the average returns for 4 years is 11.75%

C) The better measure for the next year investment, is the measures that was taken in the first year, as it gave the investment the highest return since 4 years ago.