Suppose that you invested $1,000 in a stock that returned +25% in year 1, -25% in year 2, and +25% in year 3.

What was your annualized rate of return? Hint: use geometric compounding not arithmetic average.

Answers:

annualized rate of return = +5.43%

annualized rate of return = +8.33%

annualized rate of return = +25.00%

annualized rate of return = +29.69%