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Mean Definition and Quiz

When compared to other measures like median and mode, it can provide additional context about a distribution.
  1. Define - Define the mean in Finance.
  2. Context - Use mean in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 17, 2021
Given the importance of the mean for understanding distributions in Finance it's important to make sure you have it mastered.

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How to Interpret the Mean in Finance


Mean is one of several measures of central tendency, representing the center of a distribution. For example, the mean of 10% and 20%, is 15%. It is calculated by taking the sum of the returns divided by the number of observations. Because it is a simple average it can be skewed by outliers.

Synonym: average

For context, we've all calculated and interpreted the mean over numerous occassions, and in Finance the mean is typically the first measure used to evaluate a distribution. From there, the financial analyst builds on this with measures such as standard deviation, skew and kurtosis.

Other measures of central tendancy are less impacted by outliers, so in some cases where robust statistics are used, the analysis of a distribution using the mean is supplmented with the median and mode. This is particularly true in situtions where a distribution resembles a lognormal distribution, such as with market captitalization.

In a Sentence

Ann:  Why does Kay want to change the word mean to average in our presentation deck?
Jim:  She thinks it sounds too mean.


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Relative to other measures of central tendency, mean is less susceptible to skewed results due to outliers? | True or False


What is the mean of 12%, 15% and 18%? | 12.5% or 15.0% or 17.5%


Questions or Comments?

Still unclear on the Mean for investments? Check out the Quant 101 Series where we go through many examples in Excel.

Related Terms

Our trained humans found other terms in the category statistics basics you may find helpful.

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