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I have tried searching the forums but I cannot figure out where to post a question like this nor if it has been posted before. This is on page 51 of the practice question set.
I'm confused with this answer. I thought the geometric mean would be, ((4th root (1.08*.92*1.12*.88))1 = .0052. Since the arithmetic mean is 0 it leads me to believe that the geometric would be .0052 rather than .0207.
Thank you.
Question 4.16
Good years are followed by equally bad years for a mutual fund. It earns +8%, 8%, +12%, 12% in successive years. What is the investor's overall return for the four years?
Answer:
The investor's overall return is 1.08 x 0.92 x 1.12 x 0.88  1 = 0.0207 or 2.07% for the four years.
I'm confused with this answer. I thought the geometric mean would be, ((4th root (1.08*.92*1.12*.88))1 = .0052. Since the arithmetic mean is 0 it leads me to believe that the geometric would be .0052 rather than .0207.
Thank you.
Question 4.16
Good years are followed by equally bad years for a mutual fund. It earns +8%, 8%, +12%, 12% in successive years. What is the investor's overall return for the four years?
Answer:
The investor's overall return is 1.08 x 0.92 x 1.12 x 0.88  1 = 0.0207 or 2.07% for the four years.
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