An investor who wishes to hold a stock for five years will be most interested in geometric average rather than in the arithmetic average return.

Question

Quizplus · Accepted Answer

Geometric average return takes into account the compounding effect over multiple periods, which is more relevant for long-term investors. Arithmetic average return is calculated by simply summing up the returns and dividing by the number of periods, which might not accurately reflect the actual returns earned over a longer time horizon.

An Investor Who Wishes to Hold a Stock for Five