Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period.Which one of these statements must be true regarding this portfolio for the period?
A)At least one of the four years produced an annual rate of return of 8 percent.
B)If the standard deviation of the portfolio is greater than zero,then the geometric average portfolio return is less than 8 percent.
C)The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent.
D)If the standard deviation of the portfolio is zero,then the geometric average return must also be zero.
E)The holding period return must be less than 8 percent.

Question

Quizplus · Accepted Answer

If the standard deviation is greater than zero, it indicates variability in returns, which means the geometric average return will be less than the arithmetic average return.

Suppose a Portfolio Had an Arithmetic Average Return of 8