Common text for questions 3

The Russell 1000 (R1000) is a value-weighted index of the largest 1,000 U.S. stocks. The Russell 2000 (R2000) is a value-weighted index of the next largest 2,000 U.S. stocks (that is, stock number 1,001 to 3,000). The Russell 3000 (R3000) is a value-weighted index of the largest 3,000 U.S. stocks it encompasses both stocks in the R1000 and stocks in the R2000. Use FactSet to extract total return index values for the three indices from 2011 to 2016, download this data to Excel, and compute annual returns for each index for the period 2011- 2016. Paste your data table below. Including column headers, the table should consist of 4 columns (Year, R1000, R2000, R3000) and 7 rows (Column header, 2011, 2012, , 2016).

3. Calculate the geometric average return for the three indices. Why is the geometric average return of the R3000 closer to that of the R1000 than that of the R2000?