Arithmetic mean
Definition
The arithmetic mean is the sum of a set of numbers divided by the count of numbers in the set. It is commonly used to find the central tendency of data in finance, such as average returns.
5 Must Know Facts For Your Next Test
- The arithmetic mean is sensitive to extreme values (outliers).
- It can be distorted by skewed distributions.
- In finance, it helps to understand average performance over time.
- It assumes each value contributes equally to the final result.
- Different from geometric mean, which is used for compounded growth rates.
Review Questions
- How do you calculate the arithmetic mean?
- Why might the arithmetic mean be misleading in skewed data sets?
- What is one key difference between arithmetic mean and geometric mean?
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Related terms
Geometric Mean: A type of average that indicates the central tendency of a set of numbers by using the product of their values.
Median: The middle value in a data set when it is ordered from least to greatest.
Mode: The value that appears most frequently in a data set.
