Ch 10 Flashcards
Total dollar return investment equation?
Total dollar return = dividend income + capital gain (or loss)
Return on investment
Gain or loss from investment you bought
Total cash if stock is sold, equation?
Total cash if stock is sold = initial investment + total return
Dividend yield
Dividend yield = dividend paid per share during yr./stock price
Capital gains yield equation
Pt+1 - Pt/Pt = capital gains yield
Risk premium
Excess return required from investment in risky asset
Over that required from risk free investment
2 most commonly used measures of volatility?
Variance and standard deviation
Variance
Average squared difference btw/ actual return and
average return
Standard deviation
Positive square root of variance
Normal distribution
Symmetric, bell-shaped frequency distribution that is
Completely defined by its avg. and standard deviation
Geometric average return
Average compound return earned per year over
Multi year period
Arithmetic average return
Return earned in an average year over multi year period
Geometric average return equation
Geometric average return=
([(1 + R1) x (1 + R2) x…x (1 + Rt)]^1/t) - 1
Efficient capital market
Market where security prices reflect available information
Efficient markets hypothesis (EMH)
Hypothesis that actual capital markets, such as NYSE
are efficient
