FINA 2710 Chapter Notes - Chapter 11: Stock Market Crash, High Tech, Fundamental Analysis
26 Mar 2017
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Chapter 11: introduction to risk, return, and the opportunity cost of capital. Returns help us determine the appropriate returns on non-financial assets. Lessons from capital market history: reward for bearing risk, greater the reward, greater risk (return-risk trade off) Total dollar return = income from investment + capital gain/loss due to change in price. Generally more intuitive to think in terms of percentages than dollar returns. Dividend yield = income / beginning price. Capital gains yield = (ending price beginning price) / beginning price. Total % return = dividend yield + capital gains yield. Financial markets also provide us with information about the returns that are required for various levels of risk. The extra return earned for taking on risk. The risk premium is the return over and above the risk-free rate. Variance = sum of sq. deviations from the mean / # of observations 1. Stock prices are in equilibrium or are fairly priced.
