July 12 PowerPoint

# July 12 PowerPoint - Chapter5 IntroductiontoRisk,Return,...

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7/12/2011 1 Chapter 5 Introduction to Risk, Return, and the Historical Record Holding Period Returns \$100 \$120 Ending price of a share Beginning price Cash dividend (5.10) Beginning price HPR 120 100 0 20 0.20 20% 100 100 HPR  

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7/12/2011 2 Holding Period Returns Ending price of a share Beginning price Cash dividend (5.10) Beginning price HPR \$10 dividend \$100 \$120 120 100 10 30 0.30 30% 100 100 HPR   Population Parameters vs. Sample Statistics Population Parameters Sample Statistics Develop theor Practice Develop theory Describes true distribution Estimate of underlying distribution Possible scenarios Observed scenarios Probabilities Observations are equally weighted
7/12/2011 3 Population Parameters Example Two possible scenarios: s = 1, p(1) = 0.5 s = 2, p(2) = 0.5 0.2 0.15 0.1 0.05 0 0.05 0.1 0.15 0.2 Stock A: r(1) = +0.05, r(2) = 0.01 Stock B r(1) +0 20 r(2) 016 Stock B: r(1) = +0.20, r(2) = 0.16 0.2 0.15 0.1 0.05 0 0.05 0.1 0.15 0.2 Population Parameters possible scenario probability of each scenario s ps Expected (Mean) Return –

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July 12 PowerPoint - Chapter5 IntroductiontoRisk,Return,...

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