Describe arithmetic and geometric returns, and explain the difference between both.  

2. Calculate the investment below with both geometric and arithmetic returns (Show answers to 2 decimal places).  

Period	Investment
1	30%
2	-25%
3	30%
4	-25%
5	30%
6	-25%

2. In your reporting of investment returns, in what circumstances would lead to the use of geometric returns being preferable to arithmetic returns ? In what circumstances would arithmetic returns be preferable to geometric returns? (4 marks)
4. A portfolio of non-dividend paying stocks earned a geometric mean return of 5% between January 1, 2005, and December 31, 2011. The arithmetic mean return for the same period was 6%. If the market value of the portfolio at the beginning of 2005 was $100,000, what was the market value of the portfolio at the end of 2011? (2 marks)

Answer rating: 100% (QA)

Arithmetic and geometric returns are two different ways to measure investment performance over multiple periods Heres a description of each Arithmetic... View the full answer