Which of the following statements is FALSE?
A)The compounded geometric average return is most often used for comparative purposes.
B)We should use the arithmetic average return when we are trying to estimate an investment's expected return over a future horizon based on its past performance.
C)The geometric average return will always be above the arithmetic average return and the difference grows with the volatility of the annual returns.
D)The geometric average return is a better description of the long-run historical performance of an investment.

Question

Quizplus · Accepted Answer

The statement "The geometric average return will always be above the arithmetic average return and the difference grows with the volatility of the annual returns" is false. In fact, the geometric average return is typically lower than the arithmetic average return, especially when there is volatility in the annual returns.

Which of the Following Statements Is FALSE