CFP Investments - Measuring Return Flashcards

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1
Q

Holding Period Return formula. Is it compounded?

A

Sale Price - Invested Amount - Borrowed Amount - Interest Paid + Dividends/

Equity Invested

NOT COMPOUNDED

NO consideration for time

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2
Q

Effective Annual Rate (EAR)

A

Calculates the effective interest rate earned on an investment when the compounding occurs more often than once per year.

Formula: provided

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3
Q

Arithmetic Average/Mean (AM)

A

“Simple Average”

Sum of all numbers divided by the number of observations

IGNORES COMPOUNDING!

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4
Q

Geometric Average (GM)

A

Standard formula for finding the geometric mean for a set of observations

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5
Q

A weighted average can be used to calculate

A

a weighted average share price, expected returns, beta, or duration.

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6
Q

Weighted Average Price Per Share formula

A

of shares x Price per share /

Total number of shares

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7
Q

Weighted Average Portfolio Return

A

Fair market value /

Total Portfolio Value

x

% Return

of all securities

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8
Q

Weighted Average Portfolio Beta

A

Fair market value /

Total Portfolio Value

x

Beta

of all securities

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9
Q

Net Present Value is used for investments return to calculate what?

A

It is used to evaluate capital expenditures that will result in DIFFERING CASH FLOWS over the investment period.

Positive = make investment
Negative = don’t make investment

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10
Q

Dollar-weighted return

A

Calculate IRR using the investor’s cash flows

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11
Q

Time-weighted return

Who uses this type of return calculation?

A

Calculates IRR using the security’s cash flow.

Ignores additional shares purchased.

THIS IS HOW MUTUAL FUND REPORT!

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12
Q

Arbitrage Pricing Theory (APT)

A

Asserts that pricing imbalances cannot exist for any significant period of time

APT attempt to take advantage of pricing imbalances

MULTI-FACTOR model

Factor of 0 = no impact on the return

Examples of factors: Inflation, Risk premium, Expected returns

DOES NOT USE standard deviation nor Beta

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13
Q

Foreign Currency Translation step

A
  1. Convert US dollars to foreign current o DETERMINE COST
  2. COMPUTE RETURN (utilizing the holding period return calc)
  3. Convert foreign currency BACK TO US DOLLARS
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