Which of the Following Statements Is FALSE

question 45

Multiple Choice

Which of the following statements is FALSE?

• A) The geometric average return is a better description of the long-run historical performance of an investment.
• B) The geometric average return will always be above the arithmetic average return, and the difference grows with the volatility of the annual returns.
• C) The compounded geometric average return is most often used for comparative purposes.
• D) 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.

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Definitions:

Money Supply

The entirety of financial assets present in an economy at a given moment, encompassing cash, coins, and funds in checking and savings accounts.

Average Price Level

An index reflecting the overall direction and movement of prices within an economy, serving as an indicator of inflation or deflation over time.

Quantity Theory of Money

A theory stating that the general price level of goods and services is directly proportional to the amount of money in circulation.

Price Level

A measure of the average prices of goods and services in an economy at a given time, often used to gauge inflation.