Chapter 5
Measuring Risk and Retur
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 1 of 2
By the end of this chapter, you should be able to:
• LO 5-1 Identify the components of return.
• LO 5-2 Calculate and explain a holding period return.
• LO 5-3 Compare and contrast realized returns, expected returns,
required returns.
• LO 5-4 Define and calculate arithmetic and geometric averages.
• LO 5-5 Explain the calculation of adjusted close prices and how t
may be used for calculating returns.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 2 of 2
• LO 5-6 Compare the trade-off between data sufficiency and data
staleness when using historic returns to forecast future returns.
• LO 5-7 Explain the relationship between geometric average return
the procedures for converting between effective and nominal inte
rates.
• LO 5-8 Explain how standard deviations in returns measure risk.
• LO 5-9 Provide an intuitive explanation for the assertion that stoc
returns are “close enough” to a normal distribution.
• LO 5-10 Explain the historical relationship between risk and return
single-asset context.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Components of Return, 1 of 2
• Income • Capital appreciation
− Cash generated by the asset − Difference between the
while the investor owned it purchase and sale price
− Example: dividends − Example: experience pr
when the value of the a
increases
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Measuring Risk and Retur
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 1 of 2
By the end of this chapter, you should be able to:
• LO 5-1 Identify the components of return.
• LO 5-2 Calculate and explain a holding period return.
• LO 5-3 Compare and contrast realized returns, expected returns,
required returns.
• LO 5-4 Define and calculate arithmetic and geometric averages.
• LO 5-5 Explain the calculation of adjusted close prices and how t
may be used for calculating returns.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 2 of 2
• LO 5-6 Compare the trade-off between data sufficiency and data
staleness when using historic returns to forecast future returns.
• LO 5-7 Explain the relationship between geometric average return
the procedures for converting between effective and nominal inte
rates.
• LO 5-8 Explain how standard deviations in returns measure risk.
• LO 5-9 Provide an intuitive explanation for the assertion that stoc
returns are “close enough” to a normal distribution.
• LO 5-10 Explain the historical relationship between risk and return
single-asset context.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Components of Return, 1 of 2
• Income • Capital appreciation
− Cash generated by the asset − Difference between the
while the investor owned it purchase and sale price
− Example: dividends − Example: experience pr
when the value of the a
increases
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
