5 Return and Risk_Analyzing the Historical Record

5 Return and Risk_Analyzing the Historical Record - Risk...

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Comm367 1 Risk and Return: Analyzing the Historical Record
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Comm367 2 Factors Influencing Rates u Supply Households u Demand Businesses u Government’s Net Supply and/or Demand Central Bank Actions
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Comm367 3 Q0 Q 1 r 0 r 1 Funds Interest Rates Supply Demand
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Comm367 4
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Comm367 5 Example 5.2 Annualized Rates of Return
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Comm367 6 Formula for EARs and APRs
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Comm367 7 Table 5.1 Annual Percentage Rates (APR) and Effective
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Comm367 8 Figure 5.2 Interest Rates and Inflation, 1960-2006
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Comm367 9 P D P P HPR 0 1 0 1 + - = HPR = Holding Period Return P0 = Beginning price P1 = Ending price D1 = Dividend  during period  one Rates of Return: Single Period
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Comm367 10 Ending Price = 110 Beginning Price = 100 Dividend = 14 Rates of Return: Single Period Example % 24 100 14 100 110 = + - = HPR
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Comm367 11 1) Mean: most likely value 2) Variance or standard deviation 3) Skewness 4) Kurtosis * If a distribution is approximately normal, the distribution is described by characteristics 1 and 2 Characteristics of Probability
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5 Return and Risk_Analyzing the Historical Record - Risk...

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