Suppose I hold an asset for two periods. Its return is -20% inthe first period...

Suppose I hold an asset for two periods. Its return is -20% in the first period and +10% in the second period.

Which is higher, the geometric average return or arithmetic average return?

Expert Solution

Geomatric avergae = (-0.20*0.10)^1/2 = -0.14142135623

Arithmatic Average = (-0.20 + 0.10) / 2 = 0.05

Arithematic Average is higher

jeff jeffy answered 2 years ago

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