134aF09R_R1

134aF09R_R1 - 1 Risk and Return The historical record 2 The...

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Unformatted text preview: 1 Risk and Return The historical record 2 The risk return trade-off Rates of Return: stock holding 2 The risk return trade-off Rates of Return: stock holding 3 Rates of return:a general deFnition Expected returns 4 AAR vs GA Holding Period Returns 5 Historical rates of return 6 Calculating holding period return, arithmetic and geometric average An investor earns 10%, 20%, -5% and 15% in 4 consecutive years. Holding period return = 0.4421 or 44.21% AAR = 10% GA= 9.58% AAR vs GA GA AAR The more volatile the series of returns, the greater the difference between the two measures. For a given sample period, the GA is independent of the length of the observation interval. The AAR tends to rise as the interval is shortened. 7 Which statistic is a better indicator? Depends! To estimate an investment s expected return over a future horizon, based on past performance, use AAR....
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This note was uploaded on 01/20/2010 for the course ECON econ134 taught by Professor M. during the Fall '09 term at UCSB.

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134aF09R_R1 - 1 Risk and Return The historical record 2 The...

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