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PM Chp 5

Chp 5

QuestionAnswer
In the definition of HPR (holding period return) when is the dividend paid? at then end of the holding period.
dividend yield the percentage return from dividends
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.
arithmetic average the sum of the returns in each period divided by the number of periods.
what is the best forecast of performance in future quarters? arithmetic average
geometric average the single per-period return that gives the same cumulative performance as the sequence of actual returns. (also called time-weighted average)
What is the best forecast when we want to ignore money under management? geometric avg or the time weighted average
investor net cash flows dollar amount the investor put into a mutual fund in a given period
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.
true or false, portfolio returns are higher when less money is under management. true
dollar weighted return the internal rate of return on an investment.
APR Annual percentage rates.
EAR effective annual rate
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.
probability distribution list of possible outcomes with associated probabilities.
expected return the mean (or average) value of the distribution of HPR. This is the reward from the investment
mean return also called the expected return
Surprise return the difference between the actual return and the expected return.
variance the expected value of the squared deviation from the mean.
standard deviation the square root of the variance, this is to give the measure of risk the same dimension as expected return (%)
well known bell shaped curve represents the distribution of returns that are approximately normal.
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%.)
risk free rate the rate you can earn by leaving money in risk-free assets like t-bills, money mkt, or the bank
excess return rate of return in excess of the treasury bill rate
risk aversion reluctance to accept risk
what distinguishes gambling from speculation? risk premium
speculating investors who are willing to take on risk because they expect to earn a risk premium
t or f he more risk averse an investor is the greater the risk premium will be true
Created by: delorya