Average
Average (or arithmetic mean or simply mean) is the sum of the numbers divided by total numbers.
Where n is the total number of observations (how many numbers we are adding).
Example 1. What is the average of the numbers: 4, 5, 9, 3, 2 and 13?
Solution
Here, total number of observations = n = 6. Hence,
Example 2. What is the average of the numbers: 3, 8, 0, 2, 2, 0, 10 and 7?
Solution
Here, total number of observations = n = 8. Hence,
Average of Percentages
We take average of percentages in the same way as in the average of numbers.
Example 3. What is the average of 7%, 10% and 4%?
Solution
Here, total number of observations = n = 3. Hence,
In Finance, we calculate average return in the same way as average of percentages.
Example 4. The following table shows the average return from a corporate bond for the past ten years. What is the average return from the bond?
| Year | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Return (%) | 8.5 | 9 | 5 | 6 | 8.2 | 7.6 | 10 | 10.9 | 9.7 | 11.1 |
Solution
Here, total number of observations = n = 10. Hence,
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Basic Financial terms in Corporate and Mathematical Finance |
Selection of assets, risk and return, and portfolio analysis |
View the online notes for Financial Mathematics (CT1) |
Learn Financial Computing with C++ step by step |