QM Deck 1 – Rates and Returns

How do you annualize a holding period return?

${\left(1+\mathrm{HPR}\right)}^{c/n}-1$.

How is a continuously compounded return computed from a holding period return?

$r_{cc}=\ln (1+\mathrm{HPR})$.

Why is the arithmetic mean more appropriate than the geometric mean for a single-period expected return?

It is the simple average of periodic returns.

Why is the geometric mean preferred to the arithmetic mean for multi-period investment performance?

It captures compounding across periods.