Which of the Following Statements Is False

question 66

Multiple Choice

Which of the following statements is false?

• A) The compounded geometric average return is most often used for comparative purposes.
• B) We should use the arithmetic average return when we are trying to estimate an investment's expected return over a future horizon based on its past performance.
• C) The geometric average return will always be above the arithmetic average return and the difference grows with the volatility of the annual returns.
• D) The geometric average return is a better description of the long-run historical performance of an investment.

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Definitions:

Financial Contracts

Agreements between parties to conduct a financial transaction according to specified terms.

Synthetic Stock Positions

Financial derivative strategies that mimic the outcomes of holding an actual stock, using instruments such as options.

Market Timers

Individuals or entities that attempt to predict market movements and make buying or selling decisions based on those predictions.

Transaction Cost

Expenses incurred when buying or selling securities, including commissions, taxes, and other fees.