Which of the following statements is FALSE?
A) We should use the arithmetic average return when we are trying to estimate an investment’s expected return over a future horizon based on its past performance.
B) The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns.
C) The compounded geometric average return is most often used for comparative purposes.
D) The geometric average return is a better description of the long-run historical performance of an investment.
- B) The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns.
Explanation:
Basically geometric average return used for the investments that compounded. Geometric average return is used for calculating average rate per period on the investments that are compounded over multiple periods.It is wrong to assume that this return will always be above the arithmetic average return
