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10 Cards in this Set
- Front
- Back
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What are the two parts of total return for stocks? |
Dividend Yield and Capital Gains |
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Why are unrealized capital gains or losses included in the calculation of returns? |
Conversion of investment to cash is irrelevant to its capital gains, assuming that there are no tax for this conversion. |
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Define: risk premium |
The excess return required from an investment in a risky asset (e.g. small-cap common stocks) over that required from a risk-free investment (i.e. T-Bills). |
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What is the difference between nominal and real returns? |
Real returns are adjusted for inflation. (1+R) = (1+h)(1+r) |
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"What is the first lesson from capital market history?" |
On average, riskier investments carry more average returns. "There is a reward for bearing risk." |
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What is the formula for the geometric mean of returns? |
The nth root of the product of each. |
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Define: geometric average |
The average compound return earned per year over a multiyear period. |
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Define: arithmetic average |
The return earned in an average year over a multiyear period |
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What is the key difference between geometric and arithmetic means for returns? |
Geometric calculates the return compounded annually. Arithmetic calculates the return on a typical year. |
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Define: efficient capital market |
Market in which security prices reflect available information |
