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

Question

Quizplus · Accepted Answer

The geometric average return is better suited for measuring long-term investment performance because it accounts for compounding returns. The arithmetic average only takes into account the simple average of each year's returns, which can be deceptive over longer periods of time. Therefore, an investor who wishes to hold a stock for five years will be most interested in the geometric average return.

An Investor Who Wishes to Hold a Stock for Five