ADM 2350 Lecture Notes - Lecture 6: Expected Return, Probability Distribution, Standard Deviation
13 May 2017
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Chapter 7: risk, return, and the capital asset pricing model. Return capital gain (loss) return income yield(if any) 0 e. g, a stock had an initial price of per share, paid a dividend of . 25 per share during the year, and had an ending price of . The percentage total return r = [. 25 + ( - 58)]/ = 31. 47% > cf (cash ow) is the dividend here. > the initial price (p0) is 58 and the ending price (p1) os 75. > main principal: investors like higher return and do not like higher risk! > probability distributions are used to describe the certainty of returns by listing all possible returns and their probabilities. > graphically, the tighter (i. e. , more peaked) the probability distribution, the more likely it is that the actual returns will be close to the expected value. > the tighter the probability distribution, the lower the risk assigned to a stock.
