In Market Indices TAB, what does ROR/Geometric Mean represent?

In Market Indices TAB, what does ROR/Geometric Mean represent?

• A. Monte Carlo analysis results
• B. Historical years of return
• C. Current growth rate: weighted avg of underlying indices
• D. Straight CF projections, always less than arithmetic mean

Answer: (D)

Geometric mean shows the compounded growth rate over multiple periods. It answers: what constant rate, if applied every period and reinvested, would turn the starting value into the ending value? In the Market Indices tab, ROR/Geometric Mean is used as that compounded rate to summarize performance, which naturally aligns with projecting future cash flows as straight, constant growth over time. Because compounding matters, the geometric mean tends to be lower than the simple arithmetic average when returns fluctuate. That’s why this measure is often used for projections: it reflects the realistic growth you’d expect if returns were reinvested and driven by a steady rate rather than a series of varying yearly returns. The other options describe different concepts not represented by this measure: Monte Carlo results are simulations, historical years of return are raw past data, and a current growth rate weighted average is a simple blend rather than a compounded rate.

Geometric mean shows the compounded growth rate over multiple periods. It answers: what constant rate, if applied every period and reinvested, would turn the starting value into the ending value? In the Market Indices tab, ROR/Geometric Mean is used as that compounded rate to summarize performance, which naturally aligns with projecting future cash flows as straight, constant growth over time.

Because compounding matters, the geometric mean tends to be lower than the simple arithmetic average when returns fluctuate. That’s why this measure is often used for projections: it reflects the realistic growth you’d expect if returns were reinvested and driven by a steady rate rather than a series of varying yearly returns.

The other options describe different concepts not represented by this measure: Monte Carlo results are simulations, historical years of return are raw past data, and a current growth rate weighted average is a simple blend rather than a compounded rate.