MC: Rates And Returns Pt.1

Question 1

Rates are _________ rates until inflation premium removed.

Answer 1

Nominal

Question 2

What are arithmetic, geometric and harmonic means used for?

Answer 2

Arithmetic: Use for single period/entity returns.

Geometric: Use for average return over multiple/compounding periods

Harmonic: Use for ratios and large outliers

Question 3

Name and define two other outlier adjusting mean calculations

Answer 3

Trimmed Mean: exclude a % of most extreme observation(ie. 10% trim is 5% off both ends)

Winsorized Mean: substitute larger values for a percentile.

Question 4

Rank size of mean for Harmonic, Geometric, and Arithmetic means

Answer 4

Arithmetic is largest
Geometric in middle
Harmonic is smallest

Question 5

Which weighted return punishes size of portfolio? TWR or MWR?

Answer 5

MWR does punish size of portfolio.

TWR does NOT punish size of portfolio.

Question 6

Equation for EAR( Effective Annual Return)?

Answer 6

= ( ( 1 + periodic rate) ^ m ) -1

Question 7

Equation for periodic rate?

Answer 7

= Stated Rate / # of periods

Question 8

What return calculation is used for non annual compounding?

Answer 8

EAR