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ch12%20(Capital%20Market%20History)[1]

ch12%20(Capital%20Market%20History)[1] - 12 Some Lessons...

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12 Some Lessons from Capital Market History Slide 12 - 1 Key Concepts and Skills Understand, and know how to calculate, the return on an investment Understand the historical returns and risks on various types of investments Understand capital market efficiency
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Slide 12 - 2 Returns in Financial Markets z Financial markets provide us with information about the returns that are required for various levels of risk. z We examine returns in the financial markets to help us determine the appropriate returns on non-financial assets. Lessons from Capital Market History z There is a reward for bearing risk. z The greater the potential reward, the greater the risk. This is called the risk-return trade-off. Risk, Return and Financial Markets Slide 12 - 3 Total Dollar Returns Total dollar return = Income from investment + Capital gain (or loss) due to change in price Percentage Returns It is more intuitive to think in terms of percentages than in dollar returns. Dividend yield = Income / Beginning price Capital gains yield =(Ending price – Beginning price)/Beginning price Total percentage return = Dividend yield + Capital gains yield Computing Stock Returns
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