Which of the Following Statements Is TRUE

question 42

Multiple Choice

Which of the following statements is TRUE?

• A)The geometric mean measures the average annual rates of return while the arithmetic mean measures the compound growth rate over multiple time periods.
• B)The more the returns vary, the bigger the difference between the arithmetic and geometric mean will be.The difference is dependent on the relevant investment horizon.
• C)The geometric mean is appropriate when we are trying to estimate the typical return for a given period.
• D)The arithmetic mean is a better average return estimate when we are interested in the rate of return performance of an investment over time.

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Definitions:

Decision-Making Efficiency

The effectiveness and speed with which decisions are made, often emphasizing the quality of outcomes with minimal time and resources.

Errors In Judgment

Mistakes made due to flawed reasoning or misinterpretation of information leading to incorrect conclusions or decisions.

Intelligence

The ability of an individual to learn from experience, adapt to new situations, understand complex ideas, solve problems, and use various forms of reasoning.

Biases

Cognitive shortcuts or predispositions that can influence decision-making processes and perceptions, often leading to irrational or unfair outcomes.