Investment Analysis
CH1: THE INVESTMENT PROCESS
1. Arithmetic Mean HPY (AM):
2. Geometric Mean HPY (GM):
Average HPY = average rate of return = expected rate of
return =
beginning value is only the equity
or calculate first real HPR
real HPR -1 = Real HPY
inflation rate = (new- old) / old
(remember do 1/n between haakjes)
coefficient of variation = a measurement to compare two investments with different rate of
expected return and different standard devotion
The larger the variance for an expected rate of return, the greater dispersion of expected return risk
Security market line (SML) reflects the risk-return combinations available for all risky assets in the capital market at a given
time.
Three cases that could happened with the SML
1. Movement along the SML change in risk and return for specific investment
2. Change in the slope change in investors attitude towards risk
3 Shift of SML change in expected growth capital market conditions or expected inflation (if inflation increases, SML sifts
upwards)
1
CH1: THE INVESTMENT PROCESS
1. Arithmetic Mean HPY (AM):
2. Geometric Mean HPY (GM):
Average HPY = average rate of return = expected rate of
return =
beginning value is only the equity
or calculate first real HPR
real HPR -1 = Real HPY
inflation rate = (new- old) / old
(remember do 1/n between haakjes)
coefficient of variation = a measurement to compare two investments with different rate of
expected return and different standard devotion
The larger the variance for an expected rate of return, the greater dispersion of expected return risk
Security market line (SML) reflects the risk-return combinations available for all risky assets in the capital market at a given
time.
Three cases that could happened with the SML
1. Movement along the SML change in risk and return for specific investment
2. Change in the slope change in investors attitude towards risk
3 Shift of SML change in expected growth capital market conditions or expected inflation (if inflation increases, SML sifts
upwards)
1
