Measuring Performance

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Measuring Performance

Lecture number:
Lecture Note
University of Texas at Austin
Fin 320f - Foundations of Finance

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Lecture 4 Outline of Current Lecture  Income  Capital gains  Computing returns  Percent yield  Comparing to an index  DJIA is oldest stock index  Annualized return Current Lecture  Rent is a form of income; income is taxable when earned  Selling the building for more than its purchase price generates a capital gain; the gain is taxable when realized  Income (taxable when earned)  Semi-annual interest is paid to bondholders  Quarterly dividends may be paid to stockholders  Capital gains (taxable when realized)  Capital gain: When the value of an asset rises above the price you paid for it  Capital loss: When the value of an asset falls below the price you paid for it  Percent return: The yield on an asset  Annualized return: The percent return expressed as an annual figure; used for holding periods of less than 1 year  Average annual return: The geometric average annual compounded return; used for holding periods of more than one year  Portfolio return: The weighted average return of all assets in the portfolio  The yield is an investment’s total earnings, expressed as a percentage  Yield = Dollar Return Beginning Value = Income + Capital Gain Beginning Value = Income + (End value – Beg value) Beginning Value FIN 320F

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