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← Arithmetic vs Geometric Returns
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Question
A fund returns +50% in year one and -50% in year two. What is the investor's actual outcome?
1
They gain approximately 12.5%, because positive returns compound faster than losses
2
They break even, because the arithmetic mean is 0%
3
They gain exactly 0%, because gains and losses offset symmetrically
4
They lose 25% of their initial capital
Press 1–4 to pick an answer
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