I Rates of Return a Types Chapter 5 Risk and Return i Holding Period Return HPR Price Dividends Beginning Price Ending Price Beginning 1 Rate of Return over a given period ii Arithmetic Average by the number of periods the Sum of Returns in each period divided 1 Geometric Average gives the same cumulative performance as the sequence of actual returns iii Dollar Weighted Return the internal rate of retuen IRR the the single per period return that interest arate that sets the present value of the cash flows realized on the portfolio equal to the initial cost of the portfolio b Convetnions for Quoting i APR Per Period Rate Periods per year ii APR ln 1 EAR 1 EAR Effective Annual Rate iii APR 1 EAR 1 n 1 n iv 1 EAR 1 Rate Per Peroid n 1 APR n n v 1 EAR eAPR II Risk and Risk Premium a Expected Return the mean value of the distribution of HPR i E r p s r s S S 1 1 E r expected return 2 P s Probability pf State 3 R s Return if a state occurred 4 1 to s states i V 2 p s r s E r 2 s s 1 ii Standard Deviation Square root of Variance iii b Variance the expected vale of the squared deviation from the mean
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