A porfolio of non-dividend paying stocks earned a geometric mean return of 5% between Jan 2002 and Dec 2008. The arithmetic mean return for the same period was 6%. If the market value of the portfolio at the beginning of 2002 was $100000, the market value of the portfolio at the end of 2008 was closest to: A) $135000 B) $140710 C) $142000 D) $150363
100000*(1.05)^7 = B) 140,710
I say D
map, why do you have to disagree all the time, making me nervous.
I am a contrarian:))
So…guys someone what to change the answer? 1 min left…
I say we all wrong first calculate the end of period 1. 106 *1.05^6 = answer I say C.
Final answer C, cuz geo mean is not good for the first year.
the geometric mean is the time weighted return, the arithmetic mean is the $ weighted return.
arithmetic mean is biased upward
The answer is… B.
FACKKKKKKKK! disgusting!! RIGHT AND THEN OVER ANALYZE TO DO IT WRONG! hate myself.
It seems easy but I think it is tricky!
and still… why do we use the geometric mean as a rate of return?