The geometric mean return on large-company stocks for the 1926-2018 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.

Question

Quizplus · Accepted Answer

The geometric mean return is always less than the arithmetic mean return for any set of positive returns, including large-company stocks for the 1926-2018 period. This is because the arithmetic mean return is influenced by the magnitude of the returns, whereas the geometric mean return takes into account the compounding effect of the returns.

The Geometric Mean Return on Large-Company Stocks for the 1926-2018