8-5a.- Capital Market Theory

8-5a.- Capital Market Theory - Capital Market Theory Ramesh...

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Ramesh Rao 1 Capital Market Theory
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Ramesh Rao 2 Organization A. Terminology B. Single-period Return C. Return Statistics C1. Geometric returns C2. Arithmetic Returns D. An Examination of Historical Returns E. Moral(s) of the Story?
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Ramesh Rao 3 A. Terminology General Idea: Book Rates of Return Market Rates of Return Ex-ante Returns Ex-post Returns Single-period Returns Multi-period Returns
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Ramesh Rao 4 B. What are Returns? Time 0 1 Initial investment (MV) Ending market value Dividends $ Return =Dividend + MV % Returns = $ Return / MV
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Ramesh Rao 5 % Return, r = Returns: r and R Dollar Return Beginning MV Dividend + MV Beginning MV = = Dividend Yield + Capital Gains Yield Other ways to write this? R
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6 Problem 2 stocks, Koke and Pepsee, had the same prices two years ago. During the last 2 years Koke’s stock price first increased by 10% and then dropped by 10% Pepsee’s stock price first dropped by 10% and then increased by 10% Do the 2 stocks have the same price today? Explain
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This note was uploaded on 01/15/2010 for the course FIN 357 taught by Professor Hadaway during the Fall '06 term at University of Texas at Austin.

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8-5a.- Capital Market Theory - Capital Market Theory Ramesh...

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