Question
Bill has owned an investment for two years. The historical returns have been 10% in the first year but -15% in the second year. Part
Bill has owned an investment for two years. The historical returns have been 10% in the first year but -15% in the second year.
Part A) Compute the arithmetic mean return and the geometric mean return for Bill. Express your answers as percentage returns. [2 points]
Part B) Which statistic would be more appropriate for conveying the typical returns generated by the investment in each period of the observed history? Explain your answer. [4 points]
Part C) Which statistic would be more appropriate for forming expectations about the expected return of the investment in the coming year? Explain your answer. [4 points]
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