# Know how to calculate the return on an investment

Yüklə 445 b.
 tarix 25.06.2018 ölçüsü 445 b. #51659

• ## Dollar Returns

• the sum of the cash received and the change in value of the asset, in dollars.

• \$327 gain

• ## They present year-by-year historical rates of return starting in 1926 for the following five important types of financial instruments in the United States:

• Large-company Common Stocks
• Small-company Common Stocks
• Long-term Corporate Bonds
• Long-term U.S. Government Bonds
• U.S. Treasury Bills

• ## The history of capital market returns can be summarized by describing the:

• average return
• the standard deviation of those returns
• the frequency distribution of the returns

• ## One of the most significant observations of stock market data is the long-run excess of stock return over the risk-free return.

• The average excess return from large company common stocks for the period 1926 through 2007 was:
• 8.5% = 12.3% – 3.8%
• The average excess return from small company common stocks for the period 1926 through 2007 was:
• 13.3% = 17.1% – 3.8%
• The average excess return from long-term corporate bonds for the period 1926 through 2007 was:
• 2.4% = 6.2% – 3.8%

• ## The measures of risk that we discuss are variance and standard deviation.

• The standard deviation is the standard statistical measure of the spread of a sample, and it will be the measure we use most of this time.
• Its interpretation is facilitated by a discussion of the normal distribution.

• ## The 20.0% standard deviation we found for large stock returns from 1926 through 2007 can now be interpreted in the following way:

• If stock returns are approximately normally distributed, the probability that a yearly return will fall within 20.0 percent of the mean of 12.3% will be approximately 2/3.

• ## Which is better?

• The arithmetic average is overly optimistic for long horizons.
• The geometric average is overly pessimistic for short horizons.

• ## Over 1926-2007, the U.S. equity risk premium has been quite large:

• Earlier years (beginning in 1802) provide a smaller estimate at 5.4%
• Comparable data for 1900 to 2005 put the international equity risk premium at an average of 7.1%, versus 7.4% in the U.S.

• ## See Table 10.4

• Value of United States Stock is about 45% of world total in 2008
• No other country exceeds 15%
• ## See Table 10.5

• Since 1922, Historical equity risk premiums are 5-10%
• Ignores “gamblers ruin” and small market issues

• ## E-mail: Ulearn (preferred) or chodges@westga.edu or chodges@gsu.edu

Yüklə 445 b.

Dostları ilə paylaş:

Verilənlər bazası müəlliflik hüququ ilə müdafiə olunur ©www.genderi.org 2024
rəhbərliyinə müraciət

Ana səhifə