Summary Investment Analysis (INA) | IB year 3 | Major finance and control | HvA

Investment Analysis

CH1: THE INVESTMENT PROCESS

1. Arithmetic Mean HPY (AM):



2. Geometric Mean HPY (GM):

Average HPY = average rate of return = expected rate of
return =



 beginning value is only the equity

or calculate first real HPR

 real HPR -1 = Real HPY

inflation rate = (new- old) / old



(remember do 1/n between haakjes)




 coefficient of variation = a measurement to compare two investments with different rate of
expected return and different standard devotion

The larger the variance for an expected rate of return, the greater dispersion of expected return  risk

Security market line (SML) reflects the risk-return combinations available for all risky assets in the capital market at a given
time.



Three cases that could happened with the SML

1. Movement along the SML  change in risk and return for specific investment

2. Change in the slope  change in investors attitude towards risk

3 Shift of SML  change in expected growth capital market conditions or expected inflation (if inflation increases, SML sifts
upwards)




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