More Geometric Averages Take a look back at Figure 12.4 . There, we showed the value of a $1 investment after 85 years. Use the value for the large-company stock investment to check the geometric average in Table 12.4. Average Return Series Geometric Arithmetic Standard Deviation Large-company stocks 9.9% 11.9% 20.4% Small-company stocks 12.1 16.7 32.6 Long-term corporate bonds 5.9 6.2 8.3 Long-term government bonds 5.5 5.9 9.5 Intermediate-term government bonds 5.4 5.5 5.7 U.S. Treasury bills 3.6 3.7 3.1 Inflation 3.0 3.1 4.2

In Figure 12.4 , the large-company investment grew to $2,982.24 over 85 years. The geometric average return is thus Geometric average return [latex]=2,982.24^{{1}/{85}}-1=.0987, or 9.9\%[/latex] This 9.9% is the value shown in Table 12.4 . For practice, check some of the other numbers in Table 12.4 the same way.

Question 12.5: More Geometric Averages Take a look back at Figure 12.4 . Th...

Fundamentals of Corporate Finance Standard Edition

More Geometric Averages Take a look back at Figure 12.4 . There, we showed the value of a $1 investment after 85 years. Use the value for the large-company stock investment to check the geometric average in Table 12.4.

	Average Return
Series	Geometric	Arithmetic	Standard Deviation
Large-company stocks	9.9%	11.9%	20.4%
Small-company stocks	12.1	16.7	32.6
Long-term corporate bonds	5.9	6.2	8.3
Long-term government bonds	5.5	5.9	9.5
Intermediate-term government bonds	5.4	5.5	5.7
U.S. Treasury bills	3.6	3.7	3.1
Inflation	3.0	3.1	4.2

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