If you had a fund with a Year 1 return of + 30% and a year 2 return of - 25%, what is this fund's

a. average annual return for the two years and

b. actual return for the two year period?

During Year 1, there's a return of + 30%

During Year 2, there's a return of - 25%

(A)

The average annual return for two years is ... first we need to get the cumulative return.

= (1 + 0.30) * (1 + - 0.25)

= 2.05

Then divide it by 2 to get the average annual return

= 2.05 / 2

= 1.025

So the average annual return is 1.025

(B) The Actual return for the two year period is

= 30% + - 25%

= 5%

So the actual return for two year period is 5%