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Basic Question 7 of 12

Compared to geometric mean, the arithmetic return is typically ______ if the holding period returns are not equal.

A. biased upward
B. biased downward
C. the same as the arithmetic return
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User Contributed Comments 6

User Comment
czar won't it be biased downward? can somebody please help?
michlam14 found the answer, unless R is the same every period, the geometric mean will always be smaller than Arithmetic mean. IMO i think because for arithmetic mean it is reduced by N whereas Geometric mean is reduced exponetially by nth. You should look up the formula of Geometric mean in the text book for negative value return.
jonan203 arithmetic mean does NOT take into account compounding, which is why geometric (compounded rate of return) mean will typically be smaller
Admir Geometric mean is always equal to or lower than the arithmetic mean. Never higher.
robbiecow If not equal A (arithmetic) > G (geometric) > H (harmonic)
Like in the alphabet A before G before H
pigletin essentially a math problem
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I used your notes and passed ... highly recommended!
Lauren

Lauren

Learning Outcome Statements

calculate and interpret different approaches to return measurement over time and describe their appropriate uses;

CFA® 2024 Level I Curriculum, Volume 1, Module 1.