a better measure of the investment

6.Consider an investment with the following returns over four years:

 

Year 1 2 3 4
Return 15% 7% 9% 11%

 

Which is a better measure of the investment’s past performance? If the investment’s returns are independent and identically distributed, which is a better measure of the investment’s expected return next year?

Arithmetic average is a better measure of the investment’s past performance while CAGR is a better measure of the investment’s expected return next year.

CAGR is a better measure of the investment’s past performance while arithmetic average is a better measure of the investment’s expected return next year.