Returns and Risks Flashcards
Yield
The Income generated form the investment
Capital Gains/ Loss
The change in price of the principle investment
a. Appreciation and depreciation of the value of the investment
Total Dollar Return
= Yield +Price Change
Total % Return
= Yield + Price Change/Beginning price
Net Return =
Total Return
Gross Return
Return Relative = Total Return + 1
Cumulative Wealth Index (CWI)
This is a multi period combined return
Measuring International returns formula
[RR*(End Value of Foreign Currency/Begin Value of Foreign
Currency)] – 1
Intra-period returns
This occurs where you receive multiple cash flows through out the year
before the period ends
Intra-period returns: Method 1- Approximation
Assumes all cash flows are collected at the period end
Intra-period returns: Method 1- Reinvestments
Assume a reinvestment yield at a set annual rate paid monthly
Arithmetic mean
= Sum of all returns/Number of returns = Average
Geometric Mean
= [(1+TR1)(1+TR2)…(1+TRn)]1/n – 1
- This therefore reflects compound cumulative returns over more than one
period
Discrete compounding
When the number of compounding periods per year is known
discrete compounding formula
Pt = Po*(1+R/n)nt
