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.

Consider the following five monthly returns. The arithmetic
average monthly return over this period is 1.40% and the geometric
average monthly return over this period is 1.33%. Explain the
difference between the arithmetic average return and the geometric
average return. Are both numbers useful? If so, explain why?
3% -1% 2% 7% -4%
Choose the correct answer below.
Both numbers are useful. The geometric average return tells you
what you would actually make if you held the stock over this...

You plan to analyze the value of a potential 5-year investment
in which you expect to earn a positive return every year. However,
the yearly rate of return differs every year. Which of the
following is true?
The holding period return is best for comparison to other
investments.
The geometric mean return will be larger than the arithmetic
average return.
The holding period return is the same as the arithmetic average
return.
The arithmetic average return will be larger than...

2. Which one of the followings is not related to
Geometric Return or Mean?
A. The longer the time horizon, the more critical compounding
becomes and the more appropriate the use of geometric mean.
B. The main benefit of using the geometric mean is the actual
amounts invested do not need to be known.
C. The geometric mean is the average rate of return of a set of
values calculated using the products of the terms.
D. The geometric mean...

1. Which one of the followings is not related to Holding
Period Return (HPR)?
A. Holding period return (or yield) is the total return earned
on an investment during the time that it has been held.
B. A holding period is the amount of time the investment is held
by an investor, or the period between the purchase and sale of a
security.
C. Holding period return is the average rate of return of a set
of values calculated using...

You have been given the following return data, three assets
A,B, and C over the period 2021-2024
Expected Return
Year Asset A Asset B Asset
C
2021 8%
11% 5%
2022 10%
9% 7%
2023 12%
7%
9%
2024 14%
5%
11%
Using these assets, you have isolated three investment
alternatives:
Alternative Investment
1 100% of asset A
2 45% of asset A and
55% of asset B...

According to Carlo’s stock broker, Investment A has relatively
high historical rates of return, and so he is recommending the
purchase of Investment A. Carlo’s insurance advisor, on the other
hand, is recommending the purchase of Investment B based on its
historical rates of return. And still another advisor is
recommending the purchase of a third investment (Investment C)
based on its historical returns. Carlo is trying to determine which
of the three investments is best, and he is focusing...

19. The year is 2006. You are the manager of a university
endowment and are combining stocks, bonds, and real estate funds.
Your mandate is to find the optimal portfolio that has an expected
return of 8% per year. What optimization problem would you try to
solve?
Minimize risk for an expected portfolio return of 8% per
year
Maximize expected return for a volatility target of 8% per
year
None of these
Maximize the Sharpe ratio with no constraints
Not...

16. New England
Singers has increased its dividends by 3.7 percent per year for
each of the past 16 years. Recently, the company has been
experiencing very low levels of growth, so market experts and
investors anticipated that the firm would announce that it expects
dividends to decrease by 1.2 percent per year forever. This
morning, New England Singers announced that it expects dividends to
decrease by 1.2 percent per year forever, which would be a larger
decrease than any...

Although there is some truth in the following statements, which
best describes accepting risk as part of a decision-making process,
given the definition of risk we have used in this class?
Taking a course of action when you are not sure about what will
happen in the future.
Taking a course of action even though you know that only bad
things could possibly happen.
Taking a course of action when you are uncertain about the
future, but only good outcomes...

a. Calculate the free cash flow generated by a firm which has
earnings before interest and taxes of £30m, has depreciated its
fixed assets by £1m, has invested £10m in new fixed assets and £5m
in working capital during 2019 when it paid corporate tax at 20%.
Explain what you have assumed about the firm’s asset base.
b.During 2019 the firm in (a) generated revenue of £60m, its
cost of goods sold was £20m and its selling, general and
administrative...

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