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Risk and Return rates

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return = (capital gain + dividend) / initial share price

1 + real return rate = (1 + nominal return rate) / (1 + inflation rate)

got inflation, prices rise, we can buy less

sd BIG (wider spread), risk BIG

expected return rate, k^ = SUM (k_i x P_i)
k_i = possible outcome i (usually in percentage)
P_i = prob of possible outcome i

sd = sqrt ( SUM [ (k_i – k^)^2 P_i ] )

cv = coeff of variation
cv shows risk / unit of return.
cv = sd / mean = sd / k^

An individual stock BETA show how it compares to the market.
If
beta = 1, equal risk with the avg stock in the market.
beta more than 1, means more risky that the avg.

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Written by blueroselady

November 24, 2009 at 3:44 pm

Posted in finance, study

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