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9 Cards in this Set

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 What is the relationship between real and nominal interest rates? 1 + r = (1 + Rn)/(1+i) What is the effective annual rate (EAR)? percentage increase in funds invested over a 1-year horizon What is the annual percentage rates (APRs)? rates on short-term investment (less than 1 year) are annualized using simple rather than compound interest What is the holding-period return? HPR = (ending price of a share - beginning price + cash dividend)/beginning price What is excess return? difference between the actual rate of return on a risky asset and the risk-free rate What is the Sharpe Ratio? reward to volatility ratio; risk premium (excess return)/SD of excess return; What is Value at Risk (VaR)? risk measure that highlights the potential loss from extreme negative returns; i.e. there's a 95% chance that the portfolio will not decline by \$4 million What is Conditional Tail Expectation (CTE)? expected value of portfolio assuming terminal value falls in the bottom 5% of possible outcomes; provides a fuller sense of potential losses from low-probability events What is Lower Partial Standard Deviation (LPSD)? for non-normal distributions it is a measure of the standard deviation computed solely from values below the expected return; measure of downside risk