Equation Sheet midterm I.pdf

Equation Sheet midterm I.pdf - Equation Sheet Dollar Return...

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1 Equation Sheet Dollar Return = Ending price - Beginning price + Cash dividend Holding period return: 1 1 ( ) t t t t t P P D R P Arithmetic average: 1 2 R R R T R A T Geometric average: (1 ) (1 )(1 ) (1 ) 1 2 T R R R R T G Annualized return: 1/ (1 ) 1 n AHPR HPR Simple interest over n periods: Interest Rate n Compound interest over n periods: (1 ) 1 n r Effective annual rate: (1 ) 1 m EAR r , where m= # of compounding periods per year Expected return and variance: ( ) ( ) ( ) s E r p s r s       2 2 ( ) s Var r p s r s E r Expected return/risk from historical data: 1 ( ) ( ) E r hist return s n 2 2 1 ( ) [ ( ) ] 1 Var r hist return s n 1 ( , ) 1 x y xy x x y y Cov R R R R R R n Risk premium and risk aversion: 2 1 ( ) 2 f E r r A , where A is a measure of risk aversion
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