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MyFinanceLab Ch. 7

MyFinanceLab Ch. 7 - • Geometric vs arithmetic average...

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MyFinanceLab: Ch. 7 Rate of return: o Cash return/ beginning price o (End price + dividend – beginning price)/ beginning price Expected return from single investment: o (R1 x prob. Of R1) + (R2 x prob. Of R2) + … SD of investment: o Square root of variance formula
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Unformatted text preview: • Geometric vs. arithmetic average return: o Arithmetic: What annual ROR can we expect for next year? Simple average o Geometric: Multi-year horizon [(1 + ROR1) x (1 + ROR2) x (1 + RORN)]^(1/N) - 1...
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