Answer: 21%

## Explanation To calculate the total return over multiple periods, we need to use the geometric mean (compounded return) rather than simply adding the annual returns. **Step-by-step calculation:** 1. **Convert percentage returns to decimal growth factors:** - Year 1: 5% = 1 + 0.05 = 1.05 - Year 2: 3% = 1 + 0.03 = 1.03 - Year 3: 12% = 1 + 0.12 = 1.12 2. **Calculate the cumulative growth factor:** \[ 1.05 \times 1.03 \times 1.12 = 1.21128 \] 3. **Convert back to total percentage return:** \[ (1.21128 - 1) \times 100\% = 21.128\% \] 4. **Compare with options:** - 21.128% is closest to 21% (Option C) **Why not simply add the returns?** If we simply added 5% + 3% + 12% = 20%, this would be incorrect because it ignores the compounding effect. Each year's return is applied to the accumulated value from previous years, not just the initial investment. **Verification:** - Starting with $100: - After Year 1: $100 × 1.05 = $105 - After Year 2: $105 × 1.03 = $108.15 - After Year 3: $108.15 × 1.12 = $121.128 - Total return: ($121.128 - $100)/$100 = 21.128% Therefore, the correct answer is **C. 21%**.

Author: LeetQuiz .