Explain the difference between an arithmetic average return and a geometric average return. Are both useful?...

 

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Explain the difference between an "arithmetic average return" and a "geometric average return." Are both useful? If so, explain why? (Select the best choice below.) ... A. The arithmetic average return is the best estimate of what you would earn in the future, so this is the number you care about. The geometric average return is useless. B. The geometric average return is what you would have actually achieved if you had held the stock, so this is the number you care about. The arithmetic average return is useless. C. Both numbers are useful. The geometric average return tells you what you would actually make if you held the stock over this period. You can use the arithmetic average return over the period as an estimate of the expected return. If you use this estimate, it is what you would expect to make in the next period. D. There is no difference between arithmetic and geometric average returns. The two are just different methods to get the same answer. Explain the difference between an "arithmetic average return" and a "geometric average return." Are both useful? If so, explain why? (Select the best choice below.) ... A. The arithmetic average return is the best estimate of what you would earn in the future, so this is the number you care about. The geometric average return is useless. B. The geometric average return is what you would have actually achieved if you had held the stock, so this is the number you care about. The arithmetic average return is useless. C. Both numbers are useful. The geometric average return tells you what you would actually make if you held the stock over this period. You can use the arithmetic average return over the period as an estimate of the expected return. If you use this estimate, it is what you would expect to make in the next period. D. There is no difference between arithmetic and geometric average returns. The two are just different methods to get the same answer.

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C Both numbers are useful The geometric average return tells you what you would actually make if you ... View the full answer