You invested R1,000 through your broker three years ago. Your account balance at the beginning of each
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Question:
You invested R1,000 through your broker three years ago. Your account balance at the beginning of each period is shown in the table below.
Time Account Balance
- 0R1000
- 1R1200
- 2R1500
- 3R1000
Your broker called to tell you the good news that your average annual return over the three years has been 4%. Where did he get this number? At first you are confused. It seems as though the broker must be mistaken because you are no better off than when you started investing three years ago. Suggest an alternate measure for the average return. Calculate this measure and explain to your broker why it is more appropriate. Explain to your broker when it would make sense to use the 4% result that he initially quoted you.
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