If returns on security A are more volatile than the returns on security B, the geometric average return of security A is ________ the geometric average return of security B when their arithmetic average return is the same.
A)lower than
B)the same as
C)higher than
D)cannot say for sure

Question

Quizplus · Accepted Answer

The fact that the returns on security A are more volatile means that there is a greater dispersion of returns around the mean, which in turn implies that the geometric average return of security A is lower than the arithmetic average return. Therefore, if the arithmetic average return is the same for security A and security B, security A must have a lower geometric average return.

If Returns on Security a Are More Volatile Than the Returns