The arithmetic mean is calculated as the sum of all the numbers divided by the number of the dataset. The geometric mean is a series of numbers calculated by taking the product of these numbers and raising it to the inverse of the length of the series.
Step-by-step explanation:
The geometric mean is used in finance to calculate average growth rates and is referred to as the compounded annual growth rate. Consider a stock that grows by 10% in year one, declines by 20% in year two, and then grows by 30% in year three.
Answers & Comments
Answer:
Key Differences
The arithmetic mean is calculated as the sum of all the numbers divided by the number of the dataset. The geometric mean is a series of numbers calculated by taking the product of these numbers and raising it to the inverse of the length of the series.
Step-by-step explanation:
The geometric mean is used in finance to calculate average growth rates and is referred to as the compounded annual growth rate. Consider a stock that grows by 10% in year one, declines by 20% in year two, and then grows by 30% in year three.