Session 10: Risk and Return Flashcards
1
Q
Why are capital markets important?
A
Capital markets allow companies, governments, and individuals to increase their utility/wealth
Capital markets also provide us with information about the returns that are required for various levels of risk
2
Q
dividend yield equation
A
annual yield/price
3
Q
capital gains yield
A
(current share price - previous share price)/previous share price
4
Q
Total Investment Return
A
Dividend Yield + capital gain yield = 12.14%
5
Q
Capital Gains
A
sold price - initial investment
6
Q
Difference between arithmetic and geometric average stock return
A
Arithmetic = simple average
Geometric = [(1+r1)(1+r2)(1+r3)(1+r4)]^4 - 1=
Arithmetic > Geometric
