Chapter 8: Risk, return and portfolio theory, part 1

Question 1

what does Ex Post mean

Answer 1

after the fact

Question 2

what does Ex Post Returns mean

Answer 2

past or historical returns

Question 3

what does Ex ante mean

Answer 3

before the fact

Question 4

what are ex ante returns

Answer 4

expected returns

Question 5

how can we measure ex post or historical returns

Answer 5

1. income yield

2. capital gain or loss yield

Question 6

what is income yield

Answer 6

interest payments form bonds and dividends from equities (shares)

Question 7

what is the equation for income yield

Answer 7

CF/P0

expected cash flow to be received / purchase price

Question 8

what is capital gain yield

Answer 8

measures the appreciation or deprecation in the price of the asset from starting price

capital gain (or loss) / price

Question 9

what is the yield to maturity

Answer 9

return earned by buying the bond and holding it to maturity

Question 10

What is the dividend yield

Answer 10

the cash that investors can expect to earn if the dividend payments over the next year are the same as they were over the previous year

Question 11

what is the equation for total return

Answer 11

CF + P1 - P0 / P0 or

expected cash flow + gain (or loss) / Price

Question 12

what is the attachment affect

Answer 12

people not calculating paper loss on their investment until they sell it (not real until it is sold is the idea people carry)

Question 13

what is a day trader

Answer 13

someone who buys and sells based on intraday price movements

- most people look at their investments less frequently (quarterly or annually)

Question 14

what are the two methods you use when measuring the average returns

Answer 14

1. arithmetic mean or average

2. geometric mean

Question 15

what is the formula for arithmetic mean

Answer 15

sum of all returns / total # of observations

Question 16

what does the geometric mean measure

Answer 16

the compound growth rate over multiple periods

Question 17

what is the formula for geometric mean

Answer 17

average of compounded growth rate / multiple time periods

Question 18

when would you use arithmetic mean

Answer 18

one year

Question 19

when would you use geometric mean

Answer 19

multiple years or periods

Question 20

What is standard deviation

Answer 20

see notes add it here

Question 21

how do you calculate standard deviation

Answer 21

see notes add more here

Question 22

what is the alternative method to measure instead of geometric or arithmetic mean

Answer 22

add from notes

Question 23

what is a security

Answer 23

A security is a tradable financial asset of any kind. Securities are broadly categorized into: debt securities, (e.g., banknotes, bonds and debentures) equity securities, (e.g., common stocks)