CFA Level I · CFA Level I Exam · Returns of Financial Assets and Instruments
Compared with the arithmetic mean of a series of periodic returns that are not all equal, the geometric mean return is most likely:
The geometric mean is lower than the arithmetic mean whenever returns vary across periods. The two are equal only if every period's return is identical, and the difference grows with return volatility.
- Aequal to it
- Blower than itCorrect
- Chigher than it
Explanation
For returns that vary, the geometric mean is always less than the arithmetic mean, and the gap widens as dispersion rises. They are equal only when all returns are identical.
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