The following information is available concerning the historical risk and return relationships in the U.S. capital markets:

a. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making.
b. For the time period indicated, rank these investments on a relative basis using the coefficient of variation from most to least desirable. Explain your rationale.
c. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding commonstocks.

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U.S. CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990-2011 Standard Deviation of Return Arithmetic Me an 10.28% 3.54 5.10 5.95 9.49 Geometric Investment Category Common stocks Treasury bills Long-term government bonds Long-term corporate bonds Real estate Mean 881% 3.49 4.91 5.65 9.44 16.9% 3.2 6.4 9.6 4.5 "Based on arith metic mean.