Question

Average returns can be calculated_____.

multiple choice a. different ways b. only by the arithmetic average method
c. only by the geometric average method

Answer 1

Average returns can be calculated in different ways, including the arithmetic average method and the geometric average method.

Step-by-step explanation:

Average returns can be calculated in different ways. Two common methods to calculate average returns are the arithmetic average method and the geometric average method.

The arithmetic average method calculates the average return by summing all the returns and dividing by the number of returns. For example, if you have the returns of 4%, 2%, and 6%, you would add them together (4 + 2 + 6 = 12) and divide by 3 to get an average return of 4%.

The geometric average method calculates the average return by multiplying all the returns together and then taking the nth root of the result, where n is the number of returns. For example, if you have the returns of 4%, 2%, and 6%, you would multiply them together (4% * 2% * 6% = 0.048) and take the cube root (n = 3) to get an average return of approximately 2.47%.

Answer 2

Average returns can be calculated using different methods, such as the arithmetic average method and the geometric average method.

Step-by-step explanation:

Average returns can be calculated using different methods. Two common methods are the arithmetic average method and the geometric average method.

In the arithmetic average method, you add up the returns and divide by the number of data points. For example, if you have returns of 5%, 10%, and 15%, you add them up (5% + 10% + 15% = 30%) and divide by 3 to get an average of 10%.

In the geometric average method, you calculate the average rate of return. For example, if you have returns of 5%, 10%, and 15%, you multiply them (1.05 * 1.10 * 1.15 = 1.79175) and take the nth root (where n is the number of data points) to get an average of 1.091 or 9.1%.