Unit 22 Flashcards
Performance Measures
Total Return
Dividends/interest + capital appreciation
Calculation for mutual fund returns
annual dividend ÷ public offering price (POP) = current yield
Difference between annualized return and holding period return
HPR can be over any duration of time
Annualization factor
of months in a year / # of months investment is held
Real return formula
Total return - CPI inflation percentage
Inflation AND taxes reduce returns for which type of investor
Fixed-income investors
What are always equal on a TIPS bond because of built-in inflation adjustment
Real rate of return = Coupon rate
What risk-adjusted return is calculated using
Sharpe ratio
Sharpe ratio calculation
(Actual return - Risk-free rate) / Standard deviation
Three points to remember about IRR
- Preferred method of measuring return on a DPP
- Takes into consideration the time value of money
- Way yield to maturity on a bond is computed
Does time or dollar-weighted return affect IRR?
Dollar-weighted
How most funds on mutual funds are weighted
Time-weighted, no control over whether clients put money in
How Dow Jones is different from other benchmarks
Price-weighted instead of cap-weighted
How many companies listed in the Nasdaq
3000
What MSCI EAFE tracks
Foreign stocks
Index that reflects the broadest coverage of the U.S. stock market
Wilshire 5000
What index benchmarks small-caps
Russell 2000
