You buy a share (unit) in a mutual fund for $10. After one year the unit's price rises to $20. The year following it falls back to $10. Calculate the arithmetic average (garden variety average) return for the two years. Then calculate the compound average (geometric average) return. What is the difference between the two? (Arithmetic minus geometric) Which is more accurate?

Answer rating: 100% (QA)

SOLUTION The arithmetic average return is calculated by taking the average of the annual returns ove... View the full answer