ECON 3660 Chapter Notes - Chapter 1: Liquidity Risk, Country Risk, Systematic Risk
30 Mar 2017
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Investment: current commitment of money for a period of time to gain future payments that compensate investor for: time the funds are committed, expected rate of inflation, uncertainty of the future payments. It is always a known dollar amount today for expected future stream of payments that are greater than current. To choose among different investment, you need to evaluate expected risk-return trade-offs. Way to properly evaluate/compare investments with different prices/lives. Holding period return (hpr): return over the period where you hold the investment: > 1. 0 received positive return, < 1. 0 wealth declined / negative return, 0 you lost all your money. Holding period yield (hpy): return in % term on annual basis easier to directly compare different investments. Mean rates of return: single investment (i) arithmetic mean (ii) geometric mean where hpy = sum of annual holding period yields.
