Financial Services Metrics - Money Management and Investing Flashcards
who are money managers?
professional investors who are paid to generate a return on other people’s money.
specialized metrics for investment returns?
The money management industry has its own specialized metrics for investment returns in general and for manager’s performance in particular.
thước đo chuyên biệt riêng về lợi nhuận đầu tư
how many main ways are there to calculate Asset returns?
3 main ways
For a one time investment, that pays off in the future, how can the absolute and annual rates of return be calculated?
either as a continually compounded, or as a discreet rate of return.
Both continuously compounded, and discreet are acceptable metrics in calculating asset returns, but because the two metrics will not give the same result.
In order to get a meaningful apple to apple comparison, what should we do?
always use the same method when comparing two or more returns.
what is Continuously compounded return?
Continuously compounded return is what happens when the interest earned on an investment is calculated and reinvested back into the account for an infinite number of periods.
What is the continuously compounded return given a $170 initial investment that increases to $290?
(how to calculate the continuously compounded return?)
the continuously compounded return=
ln( final price/ first price) = ln(290/170) = 53.42%
What is the annualized continuously compounded return given a $170 initial investment that increases to $290?
the number of years is 2 years
annualized continuously compounded return=
ln(final price/first price) / years = ln(290/170)/2 years = 26.7%
what is the discreet return
given a $170 initial investment that increases to $290?
discreet return =
(final price/ first price) - 1
=(290/170) - 1 = 70.59%
What is the annualized discreet return given a $170 initial investment that increases to $290?
the number of years is 2 years
the annualized discreet return =
(final price/first price)(1/years) - 1
=(290/170)(1/2) - 1 = 30.61%
When an investment is not made all at once, but
cash is invested at several different times,
what is the metric used to evaluate the overall return?
to identify a single fixed discrete, annual rate of return to apply to each of the payments that, if summed, would result in the final pay out.
This value is called the internal rate of return, or IRR.
internal rate of return (IRR)
Tỷ suất hoàn vốn nội bộ
The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments.
The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.
The Internal Rate of Return must be used to calculate returns, when:
1 / 1 point
- Cash is invested at several different times
- It is necessary to annualize the rate of return
- There are several methods that can be used, but a single method is preferred
- It is necessary to compare two different rates of return
Cash is invested at several different times
