Annualized Excess Return

Question

I have been given the following formula to calculated Annualized excess return:

Annualized excess return = (1+Monthly excess return)^12-1

The answer is provided (by the text) as AER = (1-.0036)^12-1 = 4.41%

When I calculate this I get:

 (1-.0036)^12 = 0.957645178 therefore (1-.0036)^12 - 1 = -0.042354822

On this basis I think the answer should be -4.23% and not 4.41%? Can anyone help me confirm or contradict this assertion?

Plus versus minus: $(1+.0036)^{12}=1.044066...\approx1.0441$ --> return of $4.41%$. Either you got the sign wrong or there is a typo in the source you are referring to. — Richard Hardy, Feb 03 '18 at 12:31
Thanks Richard - it is a typo in the source. I should have seen it in the formula which correctly specifies it. — SaminOz, Feb 03 '18 at 18:15

score 1 · Accepted Answer · answered Feb 03 '18 at 18:33

1

Plus versus minus: $(1+.0036)^{12}=1.044066...≈1.0441\rightarrow$ return of $4.41\%$.
Either you got the sign wrong or there is a typo in the source you are referring to.

answered Feb 03 '18 at 18:33

Richard Hardy

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Annualized Excess Return

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