Suppose a Particular Investment Earns an Arithmetic Return of 10

question 20

Multiple Choice

Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% in year 2 and 30% in year 3.The geometric average return for the year period will be

• A)greater than the arithmetic average return.
• B)equal to the arithmetic average return.
• C)less than the arithmetic average return.
• D)equal to the market return.
• E)Cannot tell from the information given

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Definitions:

Accounting Profit

The net income for a company after all expenses have been deducted from total revenue, following standard accounting practices.

Total Revenue

Total Revenue refers to the total receipts from sales of goods and services over a given period, calculated as the quantity sold multiplied by the price.

Economic Profit

The gap between the money made from sales and the forgone benefits of the inputs employed.

Total Revenue

The total amount of money generated by the sale of goods or services related to the company's primary operations.