# Difference between arithmetic average versus geometric average

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Please define and describe the difference between arithmetic average versus geometric average. Which one is more effective or provides a more complete picture when valuing a stock's past performance over the last 5 years?

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#### Solution Preview

Arithmetic mean is simple average. To calculate the arithmetic mean we add the numbers in the sample and divide the sum by the total numbers of data point. So if we want to calculate the arithmetic mean of 1,2,3,4 and 5, we add them to get the value of 15 and then divide 15 by 5 to get the arithmetic mean of 3.0

To calculate Geometric mean of n numbers we ...

#### Solution Summary

With good explanations and examples, the problems are fully explained.

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