FINA211 WK11 L21 Risk and Return Flashcards
What is the formula for one period returns?
1 + R.t+1 = (Div.t+1 + P.t+1)/P.t
1 + R.t+1 = Div.t+1/P.t + + P.t+1/P.t
Where R.t+1 is the return from periods t to t+1
R.t+1 = Div.t+1/P.t + P.t+1/P.t - 1
R.t+1 = Div.t+1/P.t + P.t+1/P.t - P.t/P.t
R.t+1 = Div.t+1/P.t + (P.t+1 - Pt.t)/P.t
Required return equals the dividend divided by price.t, plus, the difference between price.t+1 and price.t divided by price.t
What is the formula for holding period return?
HPR = (1+r.1)(1+r.2)…*(1+r.t)-1
What is the formula for geometric return?
The geometric return is the effective annual return of the holding period return.
(1+r.g)^t = 1 + HPR
r.g = [(1+r.1)(1+r.2)…*(1+r.t)]^(1/t) - 1
What is the arithmetic average return?
Rbar = (r.1 + r.2 + … + r.t)/t
What is the difference between geomertic return and arithmetic return?
Arithmetic return is the average return over a number of periods, whereas geometric return is the average compound return per period over anumber of period.
What is the formula for sample mean?
xbar = sum(x)/n
What is the formula for sample variance?
S^2 = sum((x.i - xbar)^2)/n-1
where
s^2 = sample variance
x.i = observed values
xbar = sample mean
n = number of observations
What is the formula for sample standard deviation?
s = sqrt(sum((x.i - xbar)^2)/n-1)
s = sqrt(s^2)
where
s^2 = sample variance
x.i = observed values
xbar = sample mean
n = number of observations
For normal distributions, what percentage of observations will fall within plus or minus one, two, or three standard deviations of the mean for normal distributions?
For all normal distributions/all observations of a normally distributed variable, 68.2% of observations will appear within plus or minus one standard deviation of the mean.
95.4% of observations will fall within plus or minus two standard deviations.
99.7% within plus or minus three standard deviations.
