Interview Question: A Simple Return

Sample Question #90 (finance)

An asset I’ve held for exactly five years has generated a total return of 76.2%. What was its average annual return over this five-year period? Show me your calculation.

(Comment: calculating asset returns is a very fundamental operation on finance, but a lot of candidates get even the easiest questions wrong. Don’t ever let your guard down even if you think a question is "too easy.")

(Hint: it ain’t 76.2/5!)

This entry was posted in Sample Qs. Bookmark the permalink.

3 Responses to Interview Question: A Simple Return

  1. Brett says:

    (1+x)^5 = 1.762  ==>  x=0.12

  2. Wu Chao says:

    I first thought without calculator to solve (1+x)^5 = 1.762.(1+x)^5=1+5x+10x^2+10x^3+5x^4+x^5, approximate it, 1+5x=1.762then x=0.1524A huge offset.

  3. Brett says:

    As long as you know it’s (1+x)^5 = 1.762, you’re okay.  I don’t think any interviewer would expect you to solve the equation by hand.  🙂
    The question seems easy but most non-finance candidates get it wrong.  It’s so basic that if you say on your resume you know some finance, you should definitely know how to calculate returns, including log returns and continuously compounded returns. 

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s