Topic 8- Investment Market History Flashcards
In the equation Total $ Return= Income from investment + capital gain OR loss what investments are the from the income from investment part?
dividends
coupons
Capital gain or loss is due to
change in price
holiday period return is the total
return on an asset over a specified period of time
HPR has 2 components:
capital appreciation (capital gains yield)
cash income (dividend yield)
HPR formula
new price-old price/old price (cap appreciation) + div/coupon/int payment/old price
Arithmetic average doesn’t account for
negative percentage
arithmetic average formula
R=(1/T) (R1+R2+…+RT)
A constant single rate of return, if compounded over multiple holding periods gives a true rate of g of wealth is the …
geometric average
Geometric average formula
Rg= (((1+R1)x(1+R2)x…x(1+Rt))^(1/t))-1
Order of return for bonds(corp,gov), shares, cash
cash, bonds gov, bonds corp and shares
Order of safety for investment classes (shares, cash, bonds (gov or corp))
cash, bond gov, corp, shares
Expected returns is the average of
possible returns from an investment each weighted by the possibility of the return occurring
Risk has the components of both
danger and opportunity
the theory models definition of risk
the spread in actual returns around the expected returns
Variance or std measures the
volatility of an assets return
Standard deviation of a return is
a measure of the total risk associated with returns of an asset
standard deviation provides a measure
of the dispersion of returns
standard deviation formula is the square root of
the variance of the return
the variance is inside the
brackets of the standard deviation formula
hurdle rate is also referred to as
the cost of capital/r
hurdle rate has the components of
risk less rate + risk premium
the risk less rate is what
you make on risk less investments
t bills are … free but…
default free
still some risk
a safe benchmark is
t bills
