Question
Your friend lost 20% in his investment account last year. He notes that the account balance will recover to the level it was before the
Your friend lost 20% in his investment account last year. He notes that the account balance will recover to the level it was before the loss if he can only earn a return of +20% in the account next year, or instead ff he can earn a return of +10% two years in a row. If your friend correct? Calculate the arithmetic and geometric average returns for both scenarios he proposes (the first: 20% and then +20%, the second: 20%, then +10%, then another +10%). How do these various returns relate to the validity or invalidity of your friends thoughts about how he can recover?
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