Risk_and_Return

Risk_and_Return - Chapter 10: Risk and Return: Lessons from...

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Chapter 10: Risk and Return: Lessons from Market History Ken Seng Tan Actsc 372 FALL 2008 Actsc 372-F08 Chap. 10 2 Chapter Outline ± Returns ± Holding-Period Returns ± Risk Statistics ± Return Statistics ± Risk Premium ± Summary and Conclusions Actsc 372-F08 Chap. 10 3 Returns (Dollar vs Percentage) ± Dollar Returns = Dividend + Change in Market Value Time 0 1 Initial investment Ending market value Dividends dollar return beginning market value dividend change in market value beginning market value dividend yield Perc ca entage Re pital gai tur nye l d n s i = + = =+
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Actsc 372-F08 Chap. 10 4 Returns: Example ± Suppose you bought 100 shares of BCE one year ago today at $25/share. Over the last year, you received dividends $0.20/share. At the end of the year, the stock sells for $30/share. What is your return? ± Initial investment = $25 × 100 = $2,500. ± At the end of the year, you have stock worth $3,000 and cash dividends of $20. ± Return (in dollar) = $520 = $20 + ($3,000 – $2,500). ± Return (in percentage) = 500 , 2 $ 520 $ % 8 . 20 = Actsc 372-F08 Chap. 10 5 ± The holding period return is the return that an investor would get when holding an investment over a period of n years, ± Suppose the return during year i is given as r : 1 ) 1 ( ) 1 ( ) 1 ( return period holding 2 1 + × × + × + = = n r r r " Holding Period Returns Actsc 372-F08 Chap. 10 6 Holding Period Return: Example
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This note was uploaded on 10/30/2011 for the course ACTSC 372 taught by Professor Maryhardy during the Fall '09 term at Waterloo.

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Risk_and_Return - Chapter 10: Risk and Return: Lessons from...

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