Question

for arithmetic mean return and the geometric mean return

Which statistic would be more appropriate for conveying the typical returns generated by the investment in each period of the observed history? Explain

Which statistic would be more appropriate for forming expectations about the expected return of the investment in the coming year? Explain

Answer 1

The most important and popular type of average is arithmetic mean return .The arithmetic mean is calculated by sum of all the items and by divide with total number of items. The arithmetic mean can calculated various series like individual series,discrete series and continuos series. The arithmetic mean return is more appropriate for conveying the returns from investment in each period.

The more appropriate for forming expectations in the expected return of the investment in the coming year can calculated through geometric mean return. Geometric mean is total number of items root of the of that items.that means if having 'x' number of items then we calculate the geometric mean return by use of x root of the product of x items..here we calculate the expected or possible outcome or return that is well explained and calculated through geometric mean return.