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Chapter 10 Risk and Return FinMan244 Summary R130,00   Add to cart
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  3. Stellenbosch University (SUN)
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  5. Financial Management 244 (FINMAN244)

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Chapter 10 Risk and Return FinMan244 Summary
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Unlock a complete breakdown of Chapter 10’s essentials on Risk and Return! This guide is ideal for Financial Management students. Expect comprehensive explanations of all the learning objectives. The notes were made using class slides, notes I took during lectures, formula recaps, class exercises...

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  • November 4, 2024
  • 13
  • 2024/2025
  • Summary

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CHAPTER 10: RISK AND RETURN
10.2 ASSESSING THE RETURN AND RISK CHARACTERISTIC OF A SINGLE
SECURITY
Two perspectives:
• Ex post = using historical data
• Ex ante = using expected/future values




10.2.1 EVALUATING HISTORICAL RETURNS à Ex post
Always express answer as %

CALCULATING HISTORICAL RETURNS FOR MULTIPLE YEARS

1. ARITHMETIC AVERAGE




2. GEOMETRIC AVERAGE




à Advantage: incorporates the concept of compounding

To determine if the returns are good or bad: benchmark




Investors should consider level of inflation over evaluation period as inflation erodes purchasing
power

10.2.2 EVALUATING EXPECTED RETURNS à Ex ante
Investors confronted with uncertainty.

USING PROBABILITY THEORY

, CHAPTER 10: RISK AND RETURN
10.2 ASSESSING THE RETURN AND RISK CHARACTERISTIC OF A SINGLE
SECURITY
Two perspectives:
• Ex post = using historical data
• Ex ante = using expected/future values




10.2.1 EVALUATING HISTORICAL RETURNS à Ex post
Always express answer as %

CALCULATING HISTORICAL RETURNS FOR MULTIPLE YEARS

1. ARITHMETIC AVERAGE




2. GEOMETRIC AVERAGE




à Advantage: incorporates the concept of compounding

To determine if the returns are good or bad: benchmark




Investors should consider level of inflation over evaluation period as inflation erodes purchasing
power

10.2.2 EVALUATING EXPECTED RETURNS à Ex ante
Investors confronted with uncertainty.

USING PROBABILITY THEORY

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