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.
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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