Chapter 5: Risk and Return Flashcards
The dollar-weighted return measures:
The performance of your investment in a fund, including the timing of your purchases and redemptions.
The holding period return on a stock is equal to:
The capital gain yield over the period plus the dividend yield
The difference between an investor and a gambler is:
That an investors requires a risk premium to take on that risk.
The capital allocation line connects:
The risk-free rate and the optimal risky portfolio
Historically, the best asset for the long-term investor to fend off threats of inflation and taxes is:
Common stocks
Published data on past returns earned by mutual funds are required to be:
Geometric returns
The dollar-weighted return is the:
Internal rate of return
The market risk premium is defined as:
The difference between the return on an index fund and the return on Treasury bills.
The excess return is the:
Rate of return in excess of the Treasury bill rate
The reward-to-volatility ratio is given by:
The slope of the capital allocation line
During the 1926-2010 period, this asset class provided the lowest real return:
Long-term U.S. treasury bonds
The Sharpe ratio calculation is:
E(rp)-rf / standard deviation
Total return definition:
The same of the current income and the capital gain (or loss) earned on an investment over a specified period of time
Historical performance…
Provides a basis for future expectations and does not guarantee future performances
Expected return…
The return an investor thinks an investment will earn in the future and determines what an investor is willing to pay for an investment
