Markets: A Rigorous Course
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M02 · Problem 5 ★★ Check

AM–GM on a fund's track record

A small-cap fund's annual returns over five years were +40%,−20%,+25%,−10%,+5%+40\%, -20\%, +25\%, -10\%, +5\%. (a) Compute the arithmetic mean AA, the geometric mean GG and the total growth of ₹1. (b) Compute the approximation of GG from (2.5) and explain the size of the error. (c) The fund's factsheet quotes "average annual return 8%". Which number is that, and what is the misleading part?

Answers

Commas, ₹, % and 1e-3 notation are accepted.

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