The arithmetic average return is the return earned in an average year over a multi-year period. For calculation you:
A) Add up all the returns and divide by the number of observations minus one.
B) Add one to each return, multiply these values, find the 1/n root, and subtract one.
C) Subtract the lowest return from the highest return.
D) Add up all the returns and divide by the number of observations.
E) Find the return that is exactly in the middle of the highest and lowest return.

Question

Quizplus · Accepted Answer

The correct formula for the arithmetic average return is to add up all the returns and divide by the number of observations. This formula gives the average return without requiring any additional manipulation of the data. Therefore, option D is the best choice.

The Arithmetic Average Return Is the Return Earned in an Average