Chapter 9 - Chapter 9 Risk and Return: A First Look Returns...

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Chapter 9 Risk and Return: A First Look
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Returns Dollar Return on an investment = Cash you get (or could get) out of investment – Original investment Percentage Return = Dollar Return/Original Investment Typically the cash you get out of investment is a dividend plus a capital gain Example Buy 100 shares of Wal-Mart (WMT) at $25. Receive over the year $20 in dividends Stock price at end of year is $30 Dollar return = [(30 x 100) + 20] – [25 x 100 ] = $520 Percentage return = 520/(25x100) = .208
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Holding Period Returns Holding Period Return (HPR) is return investors would experience after investing $1 for a period of n years, when the return during year i is given as ri Example 1 )] 1 ( ) 2 1 ( ) 1 1 [( Return Period Holding - + × × + × + = n r r r Year Return 1 10% 2 -5% 3 20% 4 15% % 21 . 44 4421 . 1 ) 15 . 1 ( ) 20 . 1 ( ) 95 (. ) 10 . 1 ( 1 ) 4 1 ( ) 3 1 ( ) 2 1 ( ) 1 1 ( Return Period Holding = = - × × × = - + × + × + × + = = r r r r
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This note was uploaded on 10/17/2011 for the course ECON 101 taught by Professor Thompson during the Spring '11 term at Michigan State University.

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Chapter 9 - Chapter 9 Risk and Return: A First Look Returns...

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