Arithmetic mean return
Arithmetic mean return
Arithmetic Mean Average
($25,000 + $26,000 + $43,000 + $70,000 + $72,000) / 5 = $47,200.
A limitation to the arithmetic mean average is that it can be overly affected by extremes in either direction. For example, if one of the five persons in the country earns $100 billion per year, the arithmetic mean average income would be in the billions and would not accurately count the other four citizens. For this reason, many analysts use the median in conjunction with the arithmetic mean average. The arithmetic mean average is also called simply the mean.