Week 5 & 6: Risk & Return Flashcards
Total Dollar Return
Total Dollar Return = Dividend / Interest Payment (Income) + Capital Gain / Loss
Dividend Yield
Dividend Yield = Dividend / Initial Share Price
Capital Gains Yield
Capital Gains Yield = Capital Gain / Initial Share Price
Total Percentage Return
Total Percentage Return = Dividend Yield + Capital Gains Yield
Convert from nominal to real rate of return
1 + Real Return = (1 + Nominal Return) / (1 + Inflation Rate)
Geometric Average Return Formula and Definition
r = [(1 + r1) * (1 + r2) … (1 + rn)] ^ (1/n) - 1
Earning per year on average compounded annually.
Holding Period Return
(1 + r1) * (1 + r2) … (1 + rn) - 1
Standard Deviation of a stock (historical data)
SQRT [ sum of (rt - ravg)^2 / (n - 1) ]
Standard Deviation of a stock (w/ probability of returns)
SQRT [ sum of P * (r - ravg) ^ 2 ]
Coefficient of Variation (CV) formula and definition
CV = Standard Deviation / Expected Rate of Return
Very commonly used measure of dispersion about the expected value, showing the risk per unit of return. In other words, how risky it is!
Portfolio’s Standard Deviation
SD = [ sum of P * (r - rexpected) ^ 2 ] ^ 0.5
Covariance Definition
Interaction between two stocks with one another.
Correlation Coefficient Definition
How two securities move together.
