Book 1_Quan_Common measures of return

Question 1

• Annualized return

Answer 1

= (1+HPR)^(365/days) – 1

Question 2

• Calculate PV from FV:

Answer 2

PV = FVn (1+r/m)^-mN

Question 3

• Continuous compounded return

Answer 3

Rcc = ln(1+HPR)=ln(endling/begining value)

Question 4

• Type of major return measures:

Answer 4

o Gross return
o Net return
o Pretax nominal return
o After nominal return
o Real return

Question 5

o Gross return

Answer 5

the total return after deducting commissions on trades and other costs necessary to generate the returns, but before deducting fees for the management and administration of the investment account

Question 6

o Net return

Answer 6

return after deducting the fee for management and administration

Question 7

o Pretax nominal return

Answer 7

Return before paying tax

Question 8

o Aftertax nominal return

Answer 8

after paying tax

Question 9

o Real return

Answer 9

nominal return adjusted for inflation

Question 10

Note on the commission

Answer 10

Commissions on trades and other costs that are necessary to generate the investment returns are deducted in both gross and net return measure

Question 11

Real return formular (1)

Answer 11

(1+Real return) = (1+norminal risk-free rate)(1+ risk premium)/ (1+ inflation premium)

Question 12

Real return formular (1)

Answer 12

(1+Real return) = (1+real risk-free rate)(1+ risk premium)/ (1+ inflation premium)

• Risk premium include inflation risk

Question 13

• A leveraged return

Answer 13

o refers to a return to an investor that is a multiple of the return on the underlying asset
= (r(Vo+Vb)-rbVb)/Vo