SMG IS 223 Study Guide - Final Guide: Risk-Free Interest Rate, Efficient-Market Hypothesis, Systematic Risk

• School: Boston University
• Department: Information Systems
• Course: SMG IS 223
• Professor: All

Document Summary

Chapter 12 some lessons from capital market history. Capital gain/loss: change in value of assets from when one buys investment to one sells. Total dollar return = income + capital gain/loss. Percentage returns = dividend yield + capital gains yield. Capital gains should be included in the cash flow. Dividend yield = dividend paid during the year / price of stock at beg. of year. Capital gains = (priceend pricebeg) / pricebeg. Nominal averages: simply averages all the numbers does not count for inflation. Arithmetic average return: returned earned in an average year over a multiyear period (what one. Geometric average return: average compound return earned per year over a multiyear period (what typical year) Returns: gain/loss from investment earned in a someone. Use arithmetic average return if one knows the exact aar. If one only knows estimates, use blume"s formula: [(t-1)/(n-1)] * (geometric average) * [(n-t)/(n-1)] * arithmetic average where n = # years of data.