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# Topic1 - TROY UNIVERSITY UNIVERSITY INVESTMENTS FIN 4432...

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TROY TROY UNIVERSITY UNIVERSITY INVESTMENTS INVESTMENTS FIN FIN 4432 4432 FALL SEMESTER 2011 FALL SEMESTER 2011

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Topic 1:Relationship between RISK &  RETURN Components of return Measuring return Sources of risk Measuring risk
Components of return Two Components Yield--the income component, stated as dividend  yield (dividend / price) price change, also called the capital gain or loss;  the difference between beginning price and ending  price Total Return = Yield + Price Change Yield can be zero or positive Price change can be zero, positive or negative

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Measuring return Total Return percentage measure relating all cash flows on a security f or a given time period to its purchase price Total return =[CF t + (P E – P B )]/ P B where, CF t = cash flows during the measurement period t P E = price at the end of period t or sale price   P B = purchase price of the asset or price at the beginning of the period
Arithmetic Mean vs. Geometric Mean

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