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# Ch07 - Chapter 7 Historical Asset Returns Road Map Part A...

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Chapter 7 Historical Asset Returns Road Map Part A Introduction to Finance. Part B Valuation of assets, given discount rates. Part C Determination of discount rates. Historical asset returns. Time value of money. Risk. Portfolio theory. Capital Asset Pricing Model (CAPM). Arbitrage Pricing Theory (APT). Part D Introduction to corporate. Main Issues Asset Returns Historic Asset Returns in U.S.

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7-2 Historical Asset Returns Chapter 7 1 Asset Returns Asset returns over a given period are often uncertain: r t = D t + P t P t 1 P t 1 = D t + P t P t 1 1 where P t 1 is the price at the beginning of period P t is the price at the end of period D t is the dividend at the end of period. Return on an asset is often uncertain ex ante (a random variable). It can be characterized by all possible outcomes, and probability of each outcome (state). We can write Expected rate of return on an investment is the discount rate for its cash flows: E [ r t ] r F +
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