Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% in year 2, and 30% in year 3. The geometric average return for the period will be
A) greater than the arithmetic average return.
B) equal to the arithmetic average return.
C) less than the arithmetic average return.
D) equal to the market return.
E) It cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The geometric mean will always be less than the arithmetic mean unless the returns in all periods are equal.

Suppose a Particular Investment Earns an Arithmetic Return of 10