[CFA Level I] 16, Arithmetic and Geometric Returns Tell Different Stories

This podcast is made by Ran Chen, who holds an EA license, Insurance and Securities licenses (Series 6, 63, 65), and the CFP® designation. He is passionate about opening access to high-quality exam preparation resources and helping learners prepare more effectively for professional certification exams. In this episode you will learn: - How arithmetic mean return measures simple average periodic performance without compounding. - How geometric mean return measures actual compound growth rate and terminal wealth across multiple periods. - Why return variance creates volatility drag, causing geometric returns to sit below arithmetic returns. - How to calculate two-period returns using percentage multipliers and square roots. - When to apply arithmetic mean for single-period forward forecasts versus geometric mean for historical multi-period analysis. For independent study support and additional practice, check out https://open-exam-prep.com/practice/cfa-level1 and https://www.youtube.com/@Open-exam-prep . Sources checked: October 12, 2026 - https://www.cfainstitute.org/programs/cfa-program/candidate-resources/level-i-exam - https://www.cfainstitute.org/sites/default/files/2027levelitopicoutline_online.pdf