FIN 501 Chapter Notes - Chapter 1: Dividend Yield, Dividend, Risk Premium
Document Summary
Chapter 1 a brief history of risk and return. Returns on an investment have two components: may receive some cash directly while you own the investment, value of the asset you purchase may change. Total dollar return: return on investment measured in dollars that accounts for all cash flows and capital gains/losses. Total dollar return = dividend income + capital gain (or loss) Dividend yield: annual stock dividend as a percentage of the initial stock price. Capital gains yield: the change in stock price as a percentage of the initial stock price. Capital gains yield = (pt+1 pt) / pt. Total percent return: return on an investment measured as a percentage that accounts for all cash flows and capital gains or losses. Percentage return = dividend yield + capital gains yield. Average returns for investments do not reflect the impact of inflation. Risk-free rate: rate of return on a riskless investment.
