Chapter 4 Return and Risk Flashcards
Return
The Level of profit from an investment, or the reward for investing.
Income
cash that investors periodically receive as a result of owning an investment
Total Return
combining the capital gain (or loss) with the income
Expected Return
vital measure of performance, what you think the investment will earn in the future that determines what you should be willing to pay for it
Inflation
price changes in an upward direction
Deflation
price level heads in a downward direction
Satisfactory Investment
the present value of benefits (discounted at the appropriate rate) equals or exceeds its cost.
Normal Return
the actual return that the investment earns expressed in current dollars.
Real Rate of Return
equals the nominal return minus the inflation rate, and it measures the increase in purchasing power provided by an investment.
Required Return
the rate of return that fully compensates for an investment’s risk premium.
Expected Inflation Premium
represents the average rate of inflation expected in the future.
Risk Premium
varies depending on specific issue (the type of investment, its maturity, and its features) and issuer characteristics (industry and company factors).
Holding Period
the period of time over which one wishes to measure the return on an investment.
Realized Return
the portion of income received by the investor during the period.
Paper Return
capital gain before the sale occurs.