MGMT_130_Lecture_10

MGMT_130_Lecture_10 - MGMT 130 Lecture 10 Risk and Return...

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MGMT 130 Lecture 10 Risk and Return
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Dollar Return = Dividend + Change in Market Value % Return = $ Returns / Beginning Market Value = Income Yield% + Capital Gain% • Holding Period Return = (1 + R 1 ) x (1 + R 2 ) x … x (1+ R T ) -1 Total return over T periods Annualized Return = (1+HPR) ^ (12/T) – 1 (Here T is expressed in months… if years, use 1!) How to Calculate Returns
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Example Suppose you bought 100 shares of Wal-Mart (WMT) one year ago today at $25. Over the last year, you received $20 in dividends (20 cents per share × 100 shares). At the end of the year, the stock sells for $30. Your return: You invested $25 × 100 = $2,500. At the end of the year, you have stock worth $3,000 and cash dividends of $20. Your dollar gain was $520 = $20 + ($3,000 – $2,500). Your percentage gain for the year is 20.8%
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Suppose we then calculate a 14% return for year 2 and a –8% return for year 3. HPR = (1.208) + (1.14) x (0.92) –1
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MGMT_130_Lecture_10 - MGMT 130 Lecture 10 Risk and Return...

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