An investment of \10,000experiencesreturnsofexperiences returns ofexperiencesreturnsof+100%inthefirstyear,in the first year,inthefirstyear,-50%inthesecondyear,in the second year,inthesecondyear,+100%inthethirdyear,andin the third year, andinthethirdyear,and-50%inthefourthyear.Comparethearithmeticmeanannualreturn( in the fourth year. Compare the arithmetic mean annual return (inthefourthyear.Comparethearithmeticmeanannualreturn(AM)andthegeometricmeanannualreturn() and the geometric mean annual return ()andthegeometricmeanannualreturn(GM$) over these four years.
AM=25%AM = 25\%AM=25%, GM=0%GM = 0\%GM=0%
AM=25%AM = 25\%AM=25%, GM=−25%GM = -25\%GM=−25%
AM=50%AM = 50\%AM=50%, GM=0%GM = 0\%GM=0%
AM=0%AM = 0\%AM=0%, GM=0%GM = 0\%GM=0%