To find the arithmetic average return, we add up all the yearly returns and divide by the number of years. Here are the returns:

• Year 1: 12.39%
• Year 2: -16.28%
• Year 3: 21.62%
• Year 4: 20.03%

The arithmetic average return is calculated as:

$\text{Average Return} = \frac{12.39 + (-16.28) + 21.62 + 20.03}{4}$

Calculating the sum:

$12.39 - 16.28 + 21.62 + 20.03 = 37.76$

Then, divide by 4:

$\text{Average Return} = \frac{37.76}{4} = 9.44\%$

Answer: 9.44%

Do you want further details, or do you have any questions?

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Here are 5 related questions for further exploration:

1. What is the difference between the arithmetic average and the geometric average return?
2. How would the calculation change if one year had a return of 0%?
3. Why might an investor prefer to look at the geometric average return over the arithmetic average?
4. How would this average return compare to a stock that had a constant return of 9.44% each year?
5. What does a negative return in a year imply about the stock’s performance that year?

Tip: The arithmetic average is useful for understanding average performance over time but does not account for compounding effects like the geometric average does.