Chap 9 Risk and Return Lessons from Market Historydnfg
Yixia Wang
abscissa
CM,HUST
Mar.2010
2011/2/16FN1
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Key Concepts and Skillsvote
l Know how to calculate the return on an investment
小时了了大未必佳翻译l Know how to calculate the standard deviation of an investment’s returns
l Understand the historical returns and risks on various types of investments
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l Understand the importance of the normal distribution l Understand the difference between arithmetic and geometric average returns
2011/2/16FN1
no smokingChapter Outline
l How to measure returns
l How to measure risk
l Risk-return trade off
l Risk premium
l More on Average Returns
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How to measure Returns: single period l Dollar Returns
the sum of the cash received and the
change in value of the ast, in
dollars.
coreanaTime01 Initial
investment
Ending market value Dividends
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Percentage Returns
–the sum of the cash received and the
change in value of the ast divided by
the initial investment.
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Returns: Example
l Suppo you bought 100 shares of Wal-Mart (WMT) one year ago today at $25. Over the last year, you received $20 in dividends (20 cents per share ×100 shares). At the end of the year, the stock lls for $30. How did you do?
l Quite well. You invested $25 ×100 = $2,500. At the end of the year, you have stock worth $3,000 and cash dividends of $20. Your dollar gain was $520 = $20 + ($3,000 –
$2,500).
l Your percentage gain for the year is:
$520
20.8% =
$2,500
2011/2/16FN1
