A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the same period. Given this, you know the arithmetic return will be:
A) Positive but less than the geometric average return
B) Less than the geometric return and can be negative, zero or positive
C) Equal to the geometric average return
D) Either equal to or greater than the geometric average return
E) Greater than the geometric average return

Question

Quizplus · Accepted Answer

The arithmetic average return is always greater than or equal to the geometric average return when there is variability in returns.

A Stock Has Varying Annual Rates of Return Over a 10-Year