finance exam 2 - Dividend Yield= Dt 1/Pt Capital Gains...

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Dividend Yield= D t +1 /P t Capital Gains Yield= (P t+1 -P t )/P t Average Return of Investments Small Company Stocks- 17.5% Large Company Stocks- 12.4% Long-Term Corporate Bonds- 6.2% Long-Term Government Bonds- 3.8% Inflation- 3.1% Risk Premium- The excess return required from an investment in a risky asset over that required from a risk-free investment Standard Deviation 1. Find the Actual Return of each investment period 2. Calculate the Average Return of the investment 3. Subtract the Actual Return from the Average Return 4. Square the number you get from step 3 5. Sum up column 4 and divide by (# of returns -1) (Variance) 6. Take the square root of the Variance (Standard Deviation) Variance and SD are used to measure volatility Geometric Average Return- What you actually earned per year on average, compounded annually (Used for very long forecasts covering many decades) [(1+R 1 ) x (1+R 2 ) x (1+R t )] 1/T -1 Arithmetic Average Return- What you earned in a typical year (Used for long period od time to
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