Expected Returns and Variances
expected return: the return on a risky asset expected in the future
using projected returns, we can calculate the projected, or expected, risk premium
as the difference between the expected return on a risky investment and
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If you buy an asset of any sort, your gain (or loss) from that investment is called
the return on your investment
This return will usually have two components:
o First, you may receive some cash directly while you own the investme
More about average returns
Arithmetic Versus Geometric Averages
Example page 387
Geometric average return: the average compound return earned per year over a
Arithmetic average return: the return earned in an average year over a multiy
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CORPORATE FINANCE - FIN 360
M. J. MURRAY
ECON 201. ECON 202. ACCT 211. Stat and Math Requirement of student's major.
FUNDAMENTALS OF CORPORATE FINANCE. Ross. Westerfield and Jordon,
10th Edition. 2013 CISBN 0-07-803
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F.102 Nonfinancial Corporate Business
Billions o f dollars; quarterly figures are seasonally acljusted a nnual rates
ProfiL b efore tax (book)
- Taxes on corporate income
- Net dividends
INCOME STATEMENT ($mm)
- Cost of Revenues
69, 1 n
- Operating Expenses
EARNINGS BEFORE INT. AND TAXES
- Interest Expense
EARNINGS BEFORE TAXES
+ Other Income
Managerial Finance: FIN 350
Chapter Seven Mini Case Study
Upton Company is a technology firm engaged in the manufacture and sale of innovative
computer hardware components. Assume the following:
*The risk-free rate of return,
U.S Financial Institutions
According to Investopedia, a financial institution is an establishment that conducts financial transactions
such as investments, loans and deposits. In the U.S financial institutions impact the liv
FIN 360_Homework Assignment 9
1. Jenny needs to borrow $16,000 for 3 years. The loan will be repaid in one lump sum at
the end of the loan term. Which one of the following interest rates is best for Jenny?
A. 8 percent interest, compounded mon
The main problem is that this company out of fund and need loan, but the bank dont give them
more loan unless this company can give a reasonable financial plan to show they have ability to
clean up the loan by the end of 2012. Guna Fibres need t
1. An investor can design a risky portfolio based on two stocks, A and B. Stock A
has an expected return of 21% and a standard deviation of return of 39%.
Stock B has an expected return of 14% and a standard deviation of return of
20%. The correlation coe
Inflation and Interest Rates
Real vs. Nominal Rates
Real rates: interest rates or rates of return that have been adjusted for inflation
Nominal rates: interest rates or rates of return that have not been adjusted for
Capital Market Efficiency
Capital market history suggests that the market values of stocks and bonds can
fluctuate widely from year to year
This is because prices changes because new information arrives, and investors
reassess asset values based on that