FNBU 3221 Chapter Notes - Chapter 12: Risk Premium, Standard Deviation, Frequency Distribution
Document Summary
Chapter 12: 2 components of roi: income component & change in value o o o o. Percentage returns: usually more convenient to summarize info about returns in percentage terms instead of dollar terms o o. A 1st look: initially appears that small cap stocks have highest returns since 1925. A closer look: small cap stocks fluctuated most. Calculating average returns: add up yearly returns & divide by number of years. Average returns: the historical record: stock returns much larger than bond returns. Risk premiums: risk-free return rate of return on debt that is virtually default risk-free, risk premium: excess return required from investment in risky asset over that required from risk-free investment. 1st lesson: there is reward for bearing risk. Frequency distributions & variability: variance: average squared difference between actual return & average return, standard deviation: positive square root of variance.
