Friday, October 17, 2008

Geometric Mean and Arithmetic Mean

Geometric mean of returns can be calculated as
Let us say that there are returns over a period of time as follows

20% , 15%, 25%, -20%, 10%

(1+x)^5=(1+,20)*(1+.15)*(1+.25)*(1-.2)*(1+.1)
x = (1.2*1.15*1.25*0.8*1.1)^1/5
x =