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Finance 300 chap 10

QuestionAnswer
The Average Return the best guess of what returns will be in any given year in the future.
Dollar Returns The return on an investment comes in either or both of two general forms; the income component, and the capital gain or capital loss, which reflects the change in the value of the asset.
Total dollar return = Dividend income + Capital gain (or loss)
Percentage Returns It is usually more useful to think of percentage returns because the result does not depend on the dollar amount invested.
Total percentage return = [Dividend income + Capital gain (or loss)] / Initial investment
Total percentage return = Dividend Yield / Percent of capital gain
Average Returns the arithmetic average, total returns divided by the number of observations.
variance and standard deviation common measures of dispersion.
Risk measured using: dispersion, spread, or volatility of returns.
Standard Deviation Square root(Variance)
Frequency Distributions and Variability used to describe the changes in a variable.
The geometric average return answers the question “What was your average compound return per year over a particular time period
The arithmetic average return answers the question What was your return in an average year over a particular time period (sum/#)
The arithmetic average using averages calculated over a long period to forecast returns over a shorter period
The geometric average using averages calculated over a long period to forecast returns over a long period
Capital Market Efficiency a market in which current market prices fully reflect available information. In such a market, it is not possible to devise trading rules that consistently “beat the market” after taking risk into account.
Strong form efficiency All information, both public and private is already incorporated in the price. Empirical evidence indicates that this form of efficiency does NOT hold.
Semistrong form efficiency All public information is already incorporated in the price. It says that you cannot consistently earn excess returns using available information to do fundamental analysis. Evidence is mixed, but suggests that it holds for widely-held firms
Weak form efficiency info,prices and volume,is included in the price. it says you cannot earn excess returns by looking for patterns in past price and volume information, technical analysts. Evidence suggests that markets are weak form efficient based on the trading rules.
Risk Premium The excess return in addition of the risk free rate.
Semi-strong efficient market only individuals with private information have a marketplace advantage.
Standard deviation measure the _____ of a security's return over time. volatility
Variance The average squared difference between the actual returns and the arithmetic average return.
Created by: Jylkasonga