The geometric return on an asset is approximately equal to the arithmetic return:
A) Plus one-half the standard deviation
B) Plus one-half the variance
C) Minus one-half the standard deviation
D) Minus one-half the variance
E) Times one-half

Question

Quizplus · Accepted Answer

The geometric return on an asset is approximately equal to the arithmetic return minus one-half the variance. This adjustment accounts for the effects of volatility on compounded returns.

The Geometric Return on an Asset Is Approximately Equal to the Arithmetic