5. Chapter 12

5. Chapter 12 - Chapter 12: Some Lessons from Capital...

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Chapter 12: Some Lessons from Capital Market History
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Chapter Outline Returns The Historical Record Average Returns: The First Lesson The Variability of Returns: The Second Lesson Capital Market Efficiency
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The Importance of Financial Markets Financial markets allow companies, governments and individuals to increase their utility Savers have the ability to invest in financial assets so that they can defer consumption and earn a return to compensate them for doing so Borrowers have better access to the capital that is available so that they can invest in productive assets Financial markets also provide us with information about the returns that are required for various levels of risk
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Risk, Return, and Financial Markets We can examine returns in the financial markets to help us determine the appropriate returns on non-financial assets Lessons from capital market history There is a reward for bearing risk The greater the potential reward, the greater the risk This is called the risk-return trade-off
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Percentage Returns It is generally more intuitive to think in terms of percentages than dollar returns Capital gains yield = (New – Old) / Old Total percentage return = dividend yield + capital gains yield
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This note was uploaded on 04/30/2011 for the course MBA 862 taught by Professor Phi during the Fall '11 term at Clemson.

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5. Chapter 12 - Chapter 12: Some Lessons from Capital...

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