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McGraw Hill Integrated II, 2012

MH

McGraw Hill Integrated II, 2012 View details

1. Geometric Mean

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Exercise 43 Page 625

Recall the definition of geometric mean.

The average rate of return on this investment is about $9 % .$

Practice makes perfect

Let's begin with recalling the definition of geometric mean.

The geometric mean of two positive numbers a and b is the number x such that x = a \cdot b .

In our exercise, we are given that the average rate of return on an investment over two years is the geometric mean of the two annual returns, which are

12 %

and

7 % .

Let

p

be the average rate of return on an investment over two years.

p = 12 \cdot 7

Let's evaluate the square root on the right hand side of the equation.

p = 12 \cdot 7

Multiply

p = 84

Calculate root

p = 9.1651 \dots

Round to nearest integer

p \approx 9

The average rate of return on this investment over two years is about

9 % .

Subchapter links

Exercises p.623-627