Arithmetic versus geometric returns

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Risk and Return We have seen that over long periods stock investments have tended to substantially outperform bond investments. However, it is not at all uncommon to observe investors with long horizons holding their investments entirely in bonds. Are such investors irrational? Risk Premiums Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain. Arithmetic versus Geometric Returns What is the difference between arithmetic and geometric returns? Suppose you have invested in a stock for the last 10 years. Which number is more important to you, the arithmetic or geometric return?

Reference no: EM131059914

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