What are the “Assumed”, “Optimistic”, and “Pessimistic” rates of return?
These are fixed rates of return that can be used to see how “traditional” linear projections compare to the more realistic probability analysis results. The assumed rate is the geometric average return, which equals the arithmetic average used to run the simulations. The arithmetic average is higher than the geometric average because of the way it is calculated. The average normally reported for investments and indexes is the geometric average.
