The formula used to calculate the geometric average is as follows:
Typically, the geometric mean is used to calculate investments returns on a compounded annualized basis.
Let’s assume an investor held a security that had the following return series:
{10%, 5%, -10%, 7%}
We can calculate the geometric average of this series as follows:
Using an HP12C calculator, we can calculate the geometric mean using the series above with the following keystrokes:
[1.1][ENTER]
[1.05][*]
[.9][*]
[1.07][*]
[4][1/x][y^x]
[1][-]