CFA Practice Question

CFA Practice Question

For a portfolio held for more than 2 years:
A. the yearly geometric mean return is individually sufficient to find the return over the entire period the portfolio is held.
B. the yearly arithmetic mean return is individually sufficient to find the return over the entire period the portfolio is held.
C. both the yearly arithmetic and geometric mean returns are individually sufficient to find the return over the entire period the portfolio is held.
Explanation: For example, yearly returns of 5% and 7% will give the same mean arithmetic return of 6% as 4% and 8%, and these two sets of returns will give a different over the two years. However a mean geometric return of 6% will give a return of 1.06^2 - 1 = 12.36% (only one value) over 2 years.

User Contributed Comments 1

User Comment
Bedee What is meant by the two sets of return will give a different over the two years???
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