Reading 7: Statistical Concepts and Market Returns-LOS l习题 2010, investment, produced, returns, recent

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Session 2: Quantitative Methods: Basic Concepts
Reading 7: Statistical Concepts and Market Returns

LOS l: Discuss the use of arithmetic or geometric mean when determining investment returns.

 

 

 

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:

A) geometric mean.

B) arithmetic mean.

C) harmonic mean.

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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:

A) geometric mean.

B) arithmetic mean.

C) harmonic mean.

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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.