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Chapter 9 Capital Market Theory

Chapter 9 Capital Market Theory - Chapter 9 Capital Market...

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Chapter 9 Capital Market Theory: An Overview If an individual holds only one asset →variance or standard deviation would be the appropriate measure of risk 9.1 Returns Cash is the income component of return In addition to the dividends , the other part of your return is the capital gain Total dollar return: Dividend income + Capital gain Total cash if stock is sold = Initial investment + total Dollar return Or Proceeds from stock sale + Dividends Percentage return: Dividend paid at the end of period + Change in market value Beginning market value Dividend yield: Percentage of income return Capital gain: (P t+1 – Pt/Pt) Total return: R t+1 = Div t+1 + (P t+1 – P t ) P t 9.2. Holding-Period Returns 1. Large-Company Common Stocks : Based on the S&P composite index. Includes 500 of the largest stocks on the USA 2. Small-Company Common Stock : composed of the bottom fifth of stocks traded at the NYSE in which stocks are ranked by market value (stock price * number of shares) 3. Long
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