MAF203 Lecture Notes - Lecture 2: Risk Aversion, Capital Gain, Standard Deviation
Document Summary
Required rate of return = risk free rate + stock risk premium. Required rate of return = risk free rate + beta x market risk premium. Value of firm = value of equity + value of debt. If the capital provider (debt or equity) requires a larger required rate of return, the value of the debt/equity will go down: (cid:4666)(cid:2190)(cid:2197)(cid:4667) = (cid:2191) (cid:4666)+(cid:2191)(cid:4667)(cid:2196) Return = the performance measurement of an investment/asset: holding period return, capital gain component: increase in the value of the investment so that it has a higher worth than its purchase price. Income component = is the money received from the investment. The price of one ordinary share of xyz company was on 1 january: on 31 december 2016 the price was . During the year xyx company paid a dividend of sh. 50 per share. What is the holding period (one year in this case) rate of return of the share? (ignore any taxation implications)
