In the most recent four years, an investment has produced annual returns of 4%, –1%, 6%, and 3%. The most appropriate estimate of the next year’s return, based on these historical returns, is the:
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In the most recent four years, an investment has produced annual returns of 4%, –1%, 6%, and 3%. The most appropriate estimate of the next year’s return, based on these historical returns, is the:
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Given a series of historical returns, the arithmetic mean is statistically the best estimator of the next year’s return. For estimating a compound return over more than one year, the geometric mean of the historical returns is the most appropriate estimator.
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