6 - S&P 500 - Value weighted index of 500 large cap...

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S&P 500 - Value weighted index of 500 large cap common stocks traded in US.
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FINA1003 Corporate Finance Faculty of Business and Economics University of Hong Kong Dr. Tao Lin Chapter 12: Some Lessons from Capital Market History
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Topics Covered Corporate Finance 3 Calculate percentage and dollar returns Historical return and risk by different types of assets Calculate Risk Premium Market efficiency CILO7: Describe historical risk and returns patterns from the bond and stock markets.
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Risk, Return and Financial Markets 4 We can examine returns in the financial markets to help us determine the appropriate returns on non-financial assets Lesson 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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Dollar Returns 5 Total dollar return = income from investment + capital gain (loss) due to change in price Example: You bought a bond for $950 six months ago. You have received one coupons of $30. You can sell the bond for $975 today. What is your total dollar return? Income = 30 Capital gain = 975 950 = 25 Total dollar return = 30 + 25 = $55
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6 It is generally more intuitive to think in terms of percentages than dollar returns Dividend yield = income / beginning price Capital gains yield = (ending price
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6 - S&P 500 - Value weighted index of 500 large cap...

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