The Value Of Investment Return

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Introduction The natures of investment return (future values) are generally uncertain apart from fixed interest securities. Due to this uncertainty, investors have had trouble in trying to predict the unstable nature of investments, especially lately with the Global Financial Crisis (GFC). One way of seeing how an investment will likely do is to undergo a historical analysis. The investment options are Australian: Shares, property and managed funds. These options are considered three of the most popular investment options. To get a more accurate representation of its past happenings, it is better to look at benchmarking indices rather than individual companies. Unfortunately due to the discontinuance of the index for managed funds index…show more content…
These factors include, but aren’t limited to: The cash rate (or a term deposit, short term bond rate), risks that are involved (Systematic and unsystematic as well as possible risks involved with potential return) and the ability to hedge (to reduce any extensive losses/gains suffered by an individual or an organisation) risks that are associated. Target Cash Rate According to the Reserve Bank of Australia, the cash rate target is at 2.50% effective from the 3rd September 2014 (Rba.gov.au, 2014). The Reserve Bank of Australia, “…create policy decisions involved in setting the interest rate on overnight loans in the money market. Other interest rates in the economy are influenced by this interest rate to varying degrees, so that the behaviour of borrowers and lenders in the financial markets is affected by monetary policy (though not only by monetary policy)” (Rba.gov.au, 2014). It is good to note that this isn’t the exact rate as there can be deviations from this rate, though it is assumed to be quite accurate. The cash rate is important as it is used in measurement tools such as the Sharpe ratio. Measurement Tools Certain measurement tools such as Sharpe’s ratios, standard deviation and the average rate of turn can be utilised by investors to understand certain trends and relationships that have formed and possibly predict the possible future of investments. The standard deviation
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