Suppose that an investor opens and account by investing $1,000. At the beginning of each of the next four years, he deposits additional $1,000 each year, and he liquidates the account at the end of the total five-year period. Suppose the yearly returns in this account, beginning in year 1, are as follows: -9 percent, 17 percent, 9 percent, 14 percent, and 4 percent.
Required:
1. Calculate the arithmetic and geometric average returns for these investments, and determine what the investor's actual dollar-weighted average return was for his five-year period.
2. Why is the dollar-weighted average return higher or lower than the geometric average return?
Please provide all calculation and formulas.