INvestments test 1 cheat sheet.docx

INvestments test 1 cheat sheet.docx - Treasury Bills...

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Risk Premium Std . Dev of excessreturns ¿¿ c )= yE ( r ) +( 1 y ) r Market Value of Assets SharesOutstan Rate of Return = NAV 1 NAV 0 + Income NAV HPR = P 0 = Cap Gain 1 + Dividends 1 P 0 = $Change $ Invested Arithmetic Average: r A = () N Geometric Average = r G = ( 1 + ) 1 n 1 rather than adding, multiply. APR = Per-Period Rate x Periods per Year [ ( 1 + EAR ) 1 n 1 ] n 1 + EAR = ( 1 + APR n ) n EAR = ( 1 + APR n ) n 1 Rr ≈ Rn – i Rr = ( Rn i )/( 1 + i ) Fishers Equations: Rn = Rr + E(i) Expected Return: E(r) = ∑ (prob. X return) 1.  Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return, and a 10% chance of losing 3%. What is the standard deviation of this investment? A: E(rp) = (.4) (15%) + (.5)(10%) + (.1)(-3%) = 10.7%; Op = .4(.15 - .107)^2 + .5(.1 - .107)^2 + .1(-.03 - .107)^2; Op = 5.14% 2. Consider a Treasury bill with a rate of return of 5% and the following risky securities: Security A: E(r) = .15; variance = .0400 Security B: E(r) = .10; variance = .0225 Security C: E(r) = .12; variance = .1000 Security D: E(r) = .13; variance = .0625 The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor should choose as part of
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  • Fall '13
  • ArtemMeshcheryakov

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