CFA Level I · CFA Level I Exam · Statistical Characteristics of Asset Returns
An analyst wants a single measure of the typical annual return of a fund that is equally likely to be compared with a long list of other funds, using returns of 10%, 4%, 7%, 4% and 15% over five years. The arithmetic mean annual return is closest to:
The arithmetic mean is the sum of the five returns divided by five: 40% divided by 5 equals 8.0%. The figure of 4% is the mode, which appears twice, but it is not the average return.
- A4.0%
- B8.0%Correct
- C10.0%
Explanation
Sum = 10 + 4 + 7 + 4 + 15 = 40; 40 / 5 = 8.0%. The mode (4%) is distractor A, and 10% is just the first observation, not an average.
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