Question

The geometric mean return on large-company stocks for the 1926-2015 period:

A. is approximately equal to the arithmetic mean return plus one-half of the standard deviation.

B. exceeds the arithmetic mean return.

C. is approximately equal to the arithmetic mean return minus one-half of the standard deviation.

D. is approximately equal to the arithmetic mean return plus one-half of the variance.

E. is less than the arithmetic mean return.

Answer 1

Option E is most correct. Since geometric mean is less than or equal to arithmetic mean, it has too be less than arithmetic mean in case of stock returns due to rise and fall in stock prices. It the prices were constant only then would geomean equal arithmetic mean but can never exceed arithmetic mean

Explaination for wrong options.
A- There is no basis for this relationship as there is no such formula
B-Geometric mean is usually lower that arithmetic mean anc can be equal but not greater than arithmetic mean.
c.There is no basis for this relationship as there is no such formula
D.There is no basis for this relationship as there is no such formula