# Difference between revisions of "Geometric mean"

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(Contrasted with the arithmetic mean, which ignores compounding). | (Contrasted with the arithmetic mean, which ignores compounding). | ||

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− | (1.04 x 1.05 x 1.06)<sup>(1/3)</sup> -1 | + | '''Example''' |

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+ | The geometric mean return calculated from sample returns of 4%, 5% and 6% is given by: | ||

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+ | ( 1.04 x 1.05 x 1.06 )<sup>(1/3)</sup> - 1 | ||

= 4.9968%. | = 4.9968%. |

## Revision as of 14:57, 16 March 2015

Geometric mean returns are calculated by taking account of compounding.

(Contrasted with the arithmetic mean, which ignores compounding).

**Example**

The geometric mean return calculated from sample returns of 4%, 5% and 6% is given by:

( 1.04 x 1.05 x 1.06 )^{(1/3)} - 1

= 4.9968%.