Listen to a Business English Dialogue About Mean return
John: Hi Olivia, have you heard of the term “mean return” in business and finance?
Olivia: Yes, I have. Mean return refers to the average return on an investment over a certain period, calculated by summing the returns and dividing by the number of periods.
John: That’s correct. It’s a measure used to assess the performance of an investment portfolio or asset class.
Olivia: How is mean return different from other measures of investment performance?
John: Mean return provides a single, average figure that summarizes the overall performance of an investment, while other measures such as median return or standard deviation offer different perspectives on the distribution and variability of returns.
Olivia: Can mean return be used to compare the performance of different investments?
John: Yes, investors often use mean return to compare the performance of various investments or portfolios over the same time period, helping them evaluate which investments have generated higher average returns.
Olivia: Are there any limitations to using mean return as a measure of investment performance?
John: One limitation is that mean return does not account for the variability or volatility of returns, so investments with high mean returns may also have higher risk.
Olivia: How do investors calculate mean return?
John: Investors calculate mean return by summing the returns of an investment over a specified period, then dividing by the number of periods.
Olivia: Can you give an example of how mean return is used in practice?
John: Sure, for instance, if an investment generates returns of 5%, 8%, and 10% over three years, the mean return would be the average of those returns, which is 7.67%.
Olivia: Thanks for explaining, John. Mean return seems like a useful tool for evaluating investment performance.
John: You’re welcome, Olivia. It’s an essential metric for investors to understand when assessing the effectiveness of their investment strategies.