Question

You have calculated the historical dollar weighted return, annual geometric average return and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ______
A. dollar weighted return
B. geometric average return
C. arithmetic average return
D. index return

Answer 1

Answer:

C. arithmetic average return

Explanation:

Arithmetic average return can be defined as the return on investment brought about by adding the returns for all sub-periods and then dividing it by the total number of periods. It overstates the true return and it is appropriate for shorter time periods and in this case, the best option for a performance forecast.