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:

Accurate

Characterized by preciseness and exactness in details or measurements.

Terminating Decimal

A decimal that comes to an end or has a finite number of digits after the decimal point.

Decimal Equivalent

The numerical representation of a fraction where the numerator is divided by the denominator to produce a decimal.

Percent Equivalent

The fraction or decimal expressed as a percentage.