How can we compute the mean return for an investment over some time period k? Show the formulas for the arithmetic mean and geometric mean. Utilizing the gross returns in problem 4, i.e, (1+ R₁) = 1. 1111, (1+ R₂) = 1. 0500, and

(1+ R₃) = 1. 0476, compute the arithmetic and geometric mean returns. Which mean return should you use and why?

Data from problem 4 How would you compute the k-period gross return 1+ R_t (k) for an investment from t −k +1 to t? Assume no dividends are paid. Write the general formulas using gross return 1 + R_t = P_t /P_t−1. Also, compute 1 + R_t (k) assuming that

(1 + R₁) = 100/90, (1 + R₂) = 105/100, and (1 + R₃) = 110/105 (note t = k = 3 here).