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Basic Question 5 of 12
An employee had the following percentage increases in salary over the last 5 years: 4%, 7%, 10%, 15%, 12%. The geometric mean of his salary increases equals ______.
B. 8.72%
C. 9.53%
A. 9.22%
B. 8.72%
C. 9.53%
User Contributed Comments 17
| User | Comment |
|---|---|
| cbb1 | Normally geometric rate of change is computed by adding one; geometric mean is using actually numbers -- results in a different answer. |
| RichWang | What is the finacial meaning for this straight geometric mean? |
| surob | Be careful. Tricky, but good one. |
| Mariecfa | Straight geometric exist, only if the product under the radical sign is non-negative. Impose the restriction that all the observations are greater than or equal to zero. |
| TammTamm | Ok, this upsets me because I was very excited when I calculated the geometric mean and subtracted one but now I know there are two formulas to remember. :( |
| jpducros | I don't really see in which context this 8,72 % would be useful. Do negotiate a salary increase, I believe the employee would either use an arithmetic mean, either the 9,53% mentioned above. Isn'nt it? |
| DonAnd | I am with you on that note Tamm Tamm! |
| magus | Can anyone advise on how to calculate the geometric mean with the BA II Plus calculator? |
| 2014 | There is nothing to remember when compounded performance asked we are using 1.04 ..... rest is same |
| johntan1979 | Sigh, got this wrong, but the explanation makes a lot of sense. You add 1, root and subtract 1 only when you are calculating the compounding effect, i.e. annual rate of return. No point doing that in this question, since the compounding effect of salary increase is meaningless. |
| davcer | you can always compute a geometric rate of change but not a geometric mean with negative numbers. |
| jdkuepper | As a reminder, on the BAII+, you input the multiplied numbers, press y^x, input the nth root, press 1/x, then press = for the answer. |
| Yrazzaq88 | JUST DO THIS ON YOUR BA PLUS II CALCULATOR: 1 ) MULTIPLY ALL THE NUMBERS 2 ) PRESS Y^x , 5. 3) PRESS 1/x 4) Press = 5) Multiply by 100 |
| Rachelle3 | in geometric mean if it gives you 5 numbers you times each one then press = after this you know you had to times 5 numbers so sq root the answer of that long multiplication by 5. if there were 17 numbers given then times them all then sq root it by 17! |
| linzlinked | So confused! When to use the numbers themselves, and when to add 1, again? Is it if there is no negative number, we should use the numbers themselves? |
| rehaanj | On the TI BA II Plus, this is what I did, and it worked just fine: 1) (0.04*0.07*0.10*0.15*0.12) = .00000504 2) PRESS y^x, ".20" (since 1/5 = 0.20, so this gives us .00000504^0.20 = 0.08719) 3.) Multiply 0.08719 by 100 to get 8.719 |
| Sm7272 | What is the conceptual meaning of geometric rate of change? |
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Learning Outcome Statements
calculate and interpret different approaches to return measurement over time and describe their appropriate uses;
CFA® 2025 Level I Curriculum, Volume 1, Module 1.