($324,000 / $1,000)1/50 − 1 = 5.48%
His geometric return over this period is 5.48
How do calculate the Geometric Return?
- Calculating the average rate of return on an investment that is compounded over several periods is possible using the geometric average return formula, also known as a geometric mean return.
- In other words, the geometric average return accounts for compound interest over the course of the number of periods.
- This means that the geometric mean return, which simply adds the returns for each period together and divides them by the number of periods, provides a more accurate representation of the average return on investment than the arithmetic mean return.
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