Arithmetic mean formula
Financial acronyms
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Description and Usage of the Arithmetic Mean
The formula below allows the calculation of the arithmetic mean of a series of data points. The mean, or average, is calculated by summing up all values in a dataset and dividing by the total number of values. In finance, the arithmetic mean is a fundamental measure used to calculate the average values of any financial metric within a specific dataset, like for example the average return on an investment over a specific period.
Formula for the Arithmetic Mean
\[ \overline{x} = \frac{\sum x}{n} \ \]
Symbols
\(n\ \)
Number of data points
\(x\ \)
Data point from the series
Calculation example using the arithmetic mean
If an investment yields returns of 5%, 8%, and 12% over three years, the mean return is calculated as (5% + 8% + 12%) ÷s; 3 = 8.33%.