Question: Question 1 [2 points] To estimate the annual) expected return of a security we use the average of the historical (annual) returns of the security.

Question 1 [2 points] To estimate the annual) expected return of

Question 1 [2 points] To estimate the annual) expected return of a security we use the average of the historical (annual) returns of the security. a. What kind of average would you use? [1 point] I. Arithmetic average II. Geometric average Please circle ONE (if you circle both, it counts as no answer) b. Justify your answer: Why do you think we should use Arithmetic instead of Geometric average, or vice versa? [1 point]

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