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Finance 210 Study Guide 5-7

Finance 210 Study Guide 5-7 - Finance 210 Study Guide...

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Finance 210 Study Guide Chapter 5 Vocabulary Holding-period return- Rate of return over a given investment period. (End Price-Beg Price +Cash Dividends)/(Beg Price) Arithmetic average- The sum of returns in each period divided by the number of periods Geometric average- The single per-period return that gives the same cumulative performance as the sequence of actual returns Dollar-weighted average return- the internal rate of return on an investment 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 value of the distribution of HPR Variance- The expected value of the squared deviation from the mean Standard deviation- the square root of the variance Risk-free rate- The rate of return that can be earned with certainty Risk premium- An expected return in excess of that on risk-free securities Excess return- Rate of return in excess of the T-bill rate Risk aversion- reluctance to accept risk Inflation rate- The rate at which prices are rising, measured as the rate of increase of the CPI
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Nominal interest rate- The interest rate in terms of nominal (not adjusted for purchasing power) dollars.
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