In the above $110K allocation problem, you decided to allocate 30% weight in A, 50% weight in B, 20% weight in C, and you want to find its AVG return. Which of the following is the appropriate method to find the mean (AVG) return on the $100K fund invested?
| a. |
Weighted Average (WAVG ) |
|
| b. |
Simple Average |
|
| c. |
Geometric Average |
|
| d. |
Arithmetic Average |
Arithmetic Average:
Also known as the simple average is computed by summing the values and dividing them by the count of values.
Geometric Average:
It is the average of a value set computed using the product of terms. It provides a better and more accurate measurement for investment portfolios.
Weighted Average:
It is computed by multiplying each value with its predetermined weight and summing the product. It gives more weight to the values whose frequency is relatively more.
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