The geometric mean is often used in business and economics for finding average rates of change, average rates of growth, or average ratios. Given n values (all positive), the geometric mean is the nth root of their product. The average growth factor for money compounded at annual interest rates of 30%, 12%, 20%, and 23% can be found by computing the geometric mean of 1.3, 1.12, 1.2, and 1.23. Find that average growth factor.
A) 1.2108
B) 0.5373
C) 0.0066
D) 1.466

Question

Quizplus · Accepted Answer

The geometric mean of 1.3, 1.12, 1.2, and 1.23 is calculated as the fourth root of their product: (1.3 * 1.12 * 1.2 * 1.23)^(1/4) = 1.2108.

The Geometric Mean Is Often Used in Business and Economics