Mean

CFA Level 1 – Quantitative Methods, Mean

CFA Level 1 exams usually test knowledge of three methods of calculating the mean:

1. Arithmetic Mean : The sum of all the observations in the sample or population, divided by the  number of observations.
2. Geometric Mean : This is often used when calculating investment returns over multiple periods or when measuring compound growth rates. Geometric mean is almost always used to calculated percentage returns/rates and not absolute values (such as an average price).
   Geometric Mean = [(1 + RM₁)x...x(1 + R_N)]^1/N – 1
3. Harmonic Mean : This is a  type of weighted mean computed by averaging the reciprocals of the observations (ie 1/observation value), then taking the reciprocal of that average.