Chp 5
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| In the definition of HPR (holding period return) when is the dividend paid? | at then end of the holding period.
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| dividend yield | the percentage return from dividends
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| Can you determine the HPR for a bond? | yes, this is done the same way as for a stock except you would use the coupon payments for the bond in place of dividends.
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| arithmetic average | the sum of the returns in each period divided by the number of periods.
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| what is the best forecast of performance in future quarters? | arithmetic average
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| geometric average | the single per-period return that gives the same cumulative performance as the sequence of actual returns. (also called time-weighted average)
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| What is the best forecast when we want to ignore money under management? | geometric avg or the time weighted average
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| investor net cash flows | dollar amount the investor put into a mutual fund in a given period
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| IRR | internal rate of return, is the interest rate that sets the PV of the cash flows realized on the portfolio = to the cost of establishing the portfolio.
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| true or false, portfolio returns are higher when less money is under management. | true
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| dollar weighted return | the internal rate of return on an investment.
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| APR | Annual percentage rates.
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| EAR | effective annual rate
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| scenario analysis | process of devising a list of possible economic scenarios and specifying the likelihood of each one, as well as the HPR that will be realized in each case.
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| probability distribution | list of possible outcomes with associated probabilities.
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| expected return | the mean (or average) value of the distribution of HPR. This is the reward from the investment
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| mean return | also called the expected return
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| Surprise return | the difference between the actual return and the expected return.
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| variance | the expected value of the squared deviation from the mean.
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| standard deviation | the square root of the variance, this is to give the measure of risk the same dimension as expected return (%)
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| well known bell shaped curve | represents the distribution of returns that are approximately normal.
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| reward | the difference between the expected HPR and the index stock fund and the risk free rate (ex. rf rate = 6%, expected fund rtn 14%, then reward or risk premium = 8%.)
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| risk free rate | the rate you can earn by leaving money in risk-free assets like t-bills, money mkt, or the bank
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| excess return | rate of return in excess of the treasury bill rate
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| risk aversion | reluctance to accept risk
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| what distinguishes gambling from speculation? | risk premium
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| speculating | investors who are willing to take on risk because they expect to earn a risk premium
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| t or f he more risk averse an investor is the greater the risk premium will be | true
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