Module 1.3 Common Measures Of Returns

Question 1

How are interest rates and market returns typically stated.

Answer 1

As annualized return.

Question 2

How to annualize an HPR (holding period return)? The equation?

Answer 2

(1 + HPR) ^365/days - 1

Question 3

Equation for PV of a Future Cash Flow?

Answer 3

= FV(1 + r/m)^ -mN

r= quoted annual interest rates
m = compounding periods per year
N = number of years

Question 4

Equation for continuously compounding

Answer 4

Ln( End/Start)

Question 5

Define gross return

Answer 5

Total return on a portfolio before deducting fees for management and administration

Question 6

Define net return

Answer 6

Gross return, after management fees and administrative fees.

Question 7

Are commissions on trades included in gross return or net return?

Answer 7

No, commissions on trades and other necessary costs to generate returns are already removed from gross and net returns.

Question 8

Define pre tax nominal return

Answer 8

Return before taxes

Question 9

Define after tax nominal return

Answer 9

Returns after the tax liability is deducted

Question 10

Define real return

Answer 10

Real return is nominal return adjusted for inflation

Question 11

Define Price Relative

Answer 11

The end of period value divided by beginning of period value.

Question 12

Define leveraged return and the equation

Answer 12

Refers to return to an investor that is a multiple of the return on the underlying asset.

= rate (initial value + borrowed value) - rate borrowing(value borrowed) / initial value