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Flashcards in CH 18 Deck (3)
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1
Q

Define what is meant by a “time-weighted average”.

A

An average (often a geometric average) of the period-by-period holding-period returns of an investment.

2
Q

What is the “arithmetic average”?

[Example:of a 20 year period]

A

The sum of the 20 annual returns divided by 20.

3
Q

What is the “geometric average”?

[Example:of a 20 year period]

A

The constant annual return over the 20 years that would provide the same total cumulative return over the entire investment period.