L5_part1

# L5_part1 - Ch5 Risk and Return Multi-period Return Return...

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1 Investment Analysis: Prof. Peng 1 Ch5. Risk and Return Multi-period Return Return Distribution Risk Measure Asset Allocation Capital Allocation Line Investment Analysis: Prof. Peng 2 Single Period Return ± Holding Period Return: ¾ Percentage gain during a period ± HPR : holding period return ± P 0 : beginning price ± P 1 : ending price ± D 1 : cash dividend ± Example ± You bought a stock at \$20. A year later the stock price appreciates to \$24. You also receive a cash dividend of \$1 during the year. What’s the HPR? P 0 P 1 +D 1 t = 0 t = 1 0 0 1 1 P P D P HPR + =

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2 Investment Analysis: Prof. Peng 3 Multi-period Return ± What’s the return over a few periods? ¾ Consider a mutual fund story ¾ Net inflow when the fund does well, net outflow when the fund does poorly ¾ Question: ± How would we characterize the fund’s performance over the year? ± First calculate the actual return for each period. 1Q 2Q 3Q 4Q Assets at the start 1.0 1.2 2.0 0.8 Assets at the end of the quarter (bef. net inflow) 1.1 1.5 1.6 1.0 Net Inflow at the end 0.1 0.5 -0.8 0.0 Assets in the end 1.2 2.0 0.8 1.0 HPR Investment Analysis: Prof. Peng 4 Multi-period Return ± Arithmetic Average ¾ Sum of each period return scaled by the number of periods ± r a : arithmetic return ± r i : HPR in the i th period ± N : number of periods ¾ Example: ± Calculate the arithmetic return of the fund = = + + + = N i i N a r N N r r r r 1 2 1 1 ...
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L5_part1 - Ch5 Risk and Return Multi-period Return Return...

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