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how to calculate geometric average stock return. The geometric mean is the average growth of an investment computed by multiplying n variables and then taking the nth root. The geometric mean return calculates the average return for the investments which are compounded on the basis of its frequency depending on the time period and it is used to analyze the performance of investment as it indicates the return from an investment.
Geometric Average Vs Arithmetic Average Which Is Correct For Investment Returns Arbor Asset Allocation Model Portfolio Aaamp Value Blog from www.arborinvestmentplanner.com
If we substitute 06 for r 1 and 14 for r 2 equation 7 gives us 0992 ie the correct answer. How to Calculate the Geometric Average The geometric mean for a series of numbers is calculated by taking the product of these numbers and raising it to the inverse of the length of the series. To calculate compounding interest using the geometric mean of an investments return an investor needs to first calculate the interest in year one which is 10000 multiplied by 10 or 1000.
The formula for the geometric mean return is used specifically for investments that are compounded.
If we substitute 06 for r 1 and 14 for r 2 equation 7 gives us 0992 ie the correct answer. Geometric Mean Return Formula r rate of return n number of periods. Use of the Geometric Mean Return Formula. The formula for the geometric mean return is used specifically for investments that are compounded.
