The arithmetic mean is a superior measure of the long-term performance because it indicates the compound annual rate of return based on the ending value of the investment versus its beginning value.

Question

Quizplus · Accepted Answer

The geometric mean, not the arithmetic mean, is the superior measure for indicating the compound annual rate of return because it takes into account the effect of compounding over time, which the arithmetic mean does not.

The Arithmetic Mean Is a Superior Measure of the Long-Term