FINA 4310 Chapter Notes - Chapter 5: Effective Interest Rate, Nominal Interest Rate, Real Interest Rate
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Capital allocation: choosing the fraction of the portfolio invested in virtually risk- Holding period return - reflects both the increase in the price of the shave over the investment period as well as any dividend income the share has provided. Assumes the dividend is paid at the end of the holding period. Arithmetic average, geometric average, and dollar-weighted return. Just the sum of the returns divided by the number of years. Common forecast of performance for future periods. The single per period return that would give the same cumulative performance as the sequence of actual returns. Compounding the actual period-by-period returns and then finding the single per-period rate that will compound to the same final value. Time-weight average return because it ignores the year-by- year variation in funds under management. Cumulative returns will be larger if high returns are earned in periods when larger sums have been invested and low returns are earned when less money is at risk.
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7.37%. 11.05%. 8.32%. |
It ignores cash flows occurring after the payback period. It ignores the time value of money, that is, dollars received in different years are all given the same weight. |
1.82. 2.00. 1.94 |
undervalued. overvalued. |
13.92%. 16.34%. 12.17%. |
$221.86. $195.23. $257.35. |
10.82%. 11.76%. 9.64%. |
10 years. 4.58 years. 6.12 years. |
12.04%. 14.93%. 9.15%. |
1.24 years. 1.62 years. 1.15 years.
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