Chapter 8: Risk, return and portfolio theory, part 1 Flashcards
what does Ex Post mean
after the fact
what does Ex Post Returns mean
past or historical returns
what does Ex ante mean
before the fact
what are ex ante returns
expected returns
how can we measure ex post or historical returns
- income yield
2. capital gain or loss yield
what is income yield
interest payments form bonds and dividends from equities (shares)
what is the equation for income yield
CF/P0
expected cash flow to be received / purchase price
what is capital gain yield
measures the appreciation or deprecation in the price of the asset from starting price
capital gain (or loss) / price
what is the yield to maturity
return earned by buying the bond and holding it to maturity
What is the dividend yield
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
what is the equation for total return
CF + P1 - P0 / P0 or
expected cash flow + gain (or loss) / Price
what is the attachment affect
people not calculating paper loss on their investment until they sell it (not real until it is sold is the idea people carry)
what is a day trader
someone who buys and sells based on intraday price movements
- most people look at their investments less frequently (quarterly or annually)
what are the two methods you use when measuring the average returns
- arithmetic mean or average
2. geometric mean
what is the formula for arithmetic mean
sum of all returns / total # of observations
what does the geometric mean measure
the compound growth rate over multiple periods
what is the formula for geometric mean
average of compounded growth rate / multiple time periods
when would you use arithmetic mean
one year
when would you use geometric mean
multiple years or periods
What is standard deviation
see notes add it here
how do you calculate standard deviation
see notes add more here
what is the alternative method to measure instead of geometric or arithmetic mean
add from notes
what is a security
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)
