Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Explain the difference between an arithmetic average return and a geometric average return. Are both useful? If so, explain why? (Select the best choice below.)
Explain the difference between an "arithmetic average return" and a "geometric average return." Are both useful? If so, explain why? (Select the best choice below.) A. The arithmetic average return is the best estimate of what you would earn in the future, so this is the number you care about. The geometric average return is useless. B. The geometric average return is what you would have actually achieved if you had held the stock, so this is the number you care about. The arithmetic average return is useless. C. Both numbers are useful. The geometric average return tells you what you would actually make if you held the stock over this period. You can use the arithmetic average return over the period as an estimate of the expected return. If you use this estimate, it is what you would expect to make in the next period. D. There is no difference between arithmetic and geometric average returns. The two are just different methods to get the same
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started