# chap009 - Chapter 9 RISK AND RETURN LESSONS FROM MARKET...

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Chapter 9 RISK AND RETURN LESSONS FROM MARKET HISTORY SLIDES CHAPTER WEB SITES Section Web Address 9.1 finance.yahoo.com www.smartmoney.com/marketmap 9.2 www.globalfindata.com bigcharts.marketwatch.com End-of-chapter material www.mhhe.com/edumarketinsight 9.1 Key Concepts and Skills 9.2 Chapter Outline 9.3 Returns 9.4 Returns 9.5 Returns: Example 9.6 Returns: Example 9.7 Holding Period Returns 9.8 Holding Period Return: Example 9.9 Holding Period Returns 9.10 Return Statistics 9.11 Historical Returns, 1926-2005 9.12 Average Stock Returns and Risk-Free Returns 9.13 Risk Premia 9.14 The Risk-Return Tradeoff 9.15 Risk Statistics 9.16 Normal Distribution 9.17 Normal Distribution 9.18 Example – Return and Variance 9.19 More on Average Returns 9.20 Geometric Return: Example 9.21 Geometric Return: Example 9.22 Forecasting Return 9.23 Quick Quiz

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A-122 CHAPTER 9 CHAPTER ORGANIZATION 9.1 Returns Dollar Returns Percentage Returns 9.2 Holding Period Returns 9.3 Return Statistics 9.4 Average Stock Returns and Risk-Free Returns 9.5 Risk Statistics Variance Normal Distribution and Its Implications for Standard Deviation 9.6 More on Average Returns Arithmetic versus Geometric Averages Calculating Geometric Average Returns Arithmetic Average Return or Geometric Average Return? ANNOTATED CHAPTER OUTLINE Slide 9.0 Chapter 9 Title Slide Slide 9.1 Key Concepts and Skills Slide 9.2 Chapter Outline Slide 9.3 Returns 9.1. Returns .A Dollar Returns Income component – direct cash payments such as dividends or interest Price change – loosely, capital gain or loss Total dollar return = income component + capital gain (loss) The return is unaffected by the decision to sell or hold securities. Lecture Tip: The issues discussed in this section need to be stressed. Many students feel that if you do not sell a security, you will not have to consider the capital gain or loss involved. (This is a common investor mistake – holding a loser too long because of reluctance
CHAPTER 9 A-123 to admit a bad decision was made.) Point out that non-recognition is relevant for tax purposes – only realized income must be reported. However, whether or not you have liquidated the asset is irrelevant when measuring a security’s pre-tax performance. .B Percentage Returns Percentage return = dollar return / initial investment = dividend yield + capital gains yield Dividend yield = D t+1 / P t Capital gains yield = (P t+1 – P t ) / P t Slide 9.4 Returns Slide 9.5 – Slide 9.6 Returns: Example 9.2. Holding Period Returns Defined as the total return an investor would earn from holding an investment over n periods. 1

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chap009 - Chapter 9 RISK AND RETURN LESSONS FROM MARKET...

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