Thread: X investment

Okay, i know i just posted one problem, (which i need a lot of help with - if you could duck over then when finished here ) but i have another here now.

'I' believe that an investment that averages x% over the term of an investment with a fixed return of x% over teh term of the investment are equivalent - my 'freind' is not so sure. Investigate the proposition above to see if it is warrented. Justify and make suggestions re investments.

Okay, so i need to consider sperately both simple interest and compound interest - but how? I'm sort of stuck on this one - could anyone show me the comparisions? As for the time that is passed, it is of no consequence how the interest was accrued...thats all i know. Can someone set this out, because i think there is going to be an exam question like this one, and at the moment, i don't get it!

Originally Posted by Sparta

Okay, i know i just posted one problem, (which i need a lot of help with - if you could duck over then when finished here ) but i have another here now.

'I' believe that an investment that averages x% over the term of an investment with a fixed return of x% over teh term of the investment are equivalent - my 'freind' is not so sure. Investigate the proposition above to see if it is warrented. Justify and make suggestions re investments.

Okay, so i need to consider sperately both simple interest and compound interest - but how? I'm sort of stuck on this one - could anyone show me the comparisions? As for the time that is passed, it is of no consequence how the interest was accrued...thats all i know. Can someone set this out, because i think there is going to be an exam question like this one, and at the moment, i don't get it!

First make precise what you mean by:

"an investment that averages x% over the term of an investment "

RonL

Originally Posted by Sparta

Okay, i know i just posted one problem, (which i need a lot of help with - if you could duck over then when finished here ) but i have another here now.

'I' believe that an investment that averages x% over the term of an investment with a fixed return of x% over teh term of the investment are equivalent - my 'freind' is not so sure. Investigate the proposition above to see if it is warrented. Justify and make suggestions re investments.

Okay, so i need to consider sperately both simple interest and compound interest - but how? I'm sort of stuck on this one - could anyone show me the comparisions? As for the time that is passed, it is of no consequence how the interest was accrued...thats all i know. Can someone set this out, because i think there is going to be an exam question like this one, and at the moment, i don't get it!

Originally Posted by CaptainBlack

First make precise what you mean by:

"an investment that averages x% over the term of an investment "

RonL

If an arithmetic mean is used, the investments are not equivalent. If the geometric mean is used correctly, the investments will be equivalent by definition. The average return using the geometric mean is called the compounded return.

Okay, so what do you mean by arthimetic mean? I think i get geometric mean, and how to execute that, but could you set out the 'arithmetic mean'?

I realize the significance is in the shape of the return from the point the averages were computed, simple just staying flat.


Much appreciated for your responses guys

Originally Posted by Sparta

Okay, so what do you mean by arthimetic mean? I think i get geometric mean, and how to execute that, but could you set out the 'arithmetic mean'?

I realize the significance is in the shape of the return from the point the averages were computed, simple just staying flat.


Much appreciated for your responses guys

For example, returns for 3 periods are 4%, 5% and 6%. Arithmetic mean is (4+5+6)/3 = 5.