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TL;DR

AM-GM Inequality: The arithmetic mean is always >= the geometric mean, with equality iff all values are equal. This concept is essential for quantitative trading interviews and is frequently tested at top firms.

By Valenke Exam Prep Team·Last updated 2026-06-01
Analysis

AM-GM Inequality

The arithmetic mean is always >= the geometric mean, with equality iff all values are equal.

The AM-GM inequality: For non-negative reals a1,,ana_1, \ldots, a_n: a1+a2++anna1a2ann\frac{a_1 + a_2 + \cdots + a_n}{n} \geq \sqrt[n]{a_1 \cdot a_2 \cdots a_n} Equality holds if and only if a1=a2==ana_1 = a_2 = \cdots = a_n. When to use: Optimization problems — "minimize x+1xx + \frac{1}{x} for x>0x > 0." Apply AM-GM: x+1x2x1x=2x + \frac{1}{x} \geq 2\sqrt{x \cdot \frac{1}{x}} = 2, with equality at x=1x = 1. Power move: Rewrite the expression as a sum of terms whose product is constant (or vice versa), then apply AM-GM. This is a fundamental technique. Use it before reaching for Lagrange multipliers or calculus-based optimization. Many contest optimization problems are AM-GM in disguise.

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