EBK FUNDAMENTALS OF CORPORATE FINANCE A
10th Edition
ISBN: 9780100342613
Author: Ross
Publisher: YUZU
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Question
Chapter 12.5, Problem 12.5BCQ
Summary Introduction
To critically think about: The type of average return that the investor should use to forecast the stock market prices for the next century.
Introduction:
Total return refers to the total income from an investment. The total income includes the periodic incomes and the increase or decrease in the value of an asset. Average returns refer to the returns that the investments earn in a typical year.
Arithmetic average return refers to the
Geometric average return refers to the return per year after compounding the average returns for multiple years.
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Students have asked these similar questions
Name the econometric term used for estimating the correlation between today’s stock price and the price of previous days (lag prices).
A challenge we run into when forecasting future stock returns is
that stock returns compound. So, when using historical
averages to forecast the future, we need to average together
the arithmetic and geometric average returns using Blume's
Formula:
R(T) = T GeoAvg + NT Arith Avg
N-1
In this formula, N is the number of historical annual returns you
are using to calculate your averages and T is the number of
future annual returns you are forecasting.
Suppose you gather the following prices for a stock in order to
calculate the last 10 (N = 10) annual returns. The stock does not
pay dividends.
Time
0
1
Time
0
calculate the last 10 (N=10) annual returns. The stock does not
pay dividends.
1
2
3
4
5
10
6
.
7
8
9
10
Price
$23.16
$32.81
Price
$23.16
$32.81
$33.63
$36.83
$41.95
$41.04
$33.83
$37.45
$30.56
$29.90
$47.93
Using Blume's formula, what is the expected return per year for
the next 4 years (T = 4)?
Enter your answer as a percentage, rounded to the nearest 0.0001.
For example, for…
The metric that is used to show the extent to which a given stock’s return move up and down with the stock market?
a. Correlation
b. Beta
c. Standard deviation
d. Expected return
Chapter 12 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE A
Ch. 12.1 - Prob. 12.1ACQCh. 12.1 - Why are unrealized capital gains or losses...Ch. 12.1 - What is the difference between a dollar return and...Ch. 12.2 - Prob. 12.2ACQCh. 12.2 - Why doesnt everyone just buy small stocks as...Ch. 12.2 - Prob. 12.2CCQCh. 12.2 - About how many times did large-company stocks...Ch. 12.2 - What was the longest winning streak (years without...Ch. 12.2 - How often did the T-bill portfolio have a negative...Ch. 12.3 - Prob. 12.3ACQ
Ch. 12.3 - What was the real (as opposed to nominal) risk...Ch. 12.3 - Prob. 12.3CCQCh. 12.3 - What is the first lesson from capital market...Ch. 12.4 - In words, how do we calculate a variance? A...Ch. 12.4 - With a normal distribution, what is the...Ch. 12.4 - Prob. 12.4CCQCh. 12.4 - What is the second lesson from capital market...Ch. 12.5 - Prob. 12.5ACQCh. 12.5 - Prob. 12.5BCQCh. 12.6 - What is an efficient market?Ch. 12.6 - Prob. 12.6BCQCh. 12 - Chase Bank pays an annual dividend of 1.05 per...Ch. 12 - Prob. 12.2CTFCh. 12 - The risk premium is computed as the excess return...Ch. 12 - Prob. 12.4CTFCh. 12 - Prob. 12.5CTFCh. 12 - Prob. 12.6CTFCh. 12 - Prob. 1CRCTCh. 12 - Prob. 2CRCTCh. 12 - Risk and Return [LO2, 3] We have seen that over...Ch. 12 - Market Efficiency Implications [LO4] Explain why a...Ch. 12 - Efficient Markets Hypothesis [LO4] A stock market...Ch. 12 - Semistrong Efficiency [LO4] If a market is...Ch. 12 - Efficient Markets Hypothesis [LO4] What are the...Ch. 12 - Stocks versus Gambling [LO4] Critically evaluate...Ch. 12 - Efficient Markets Hypothesis [LO4] Several...Ch. 12 - Efficient Markets Hypothesis [LO4] For each of the...Ch. 12 - Prob. 1QPCh. 12 - Prob. 2QPCh. 12 - Prob. 3QPCh. 12 - Prob. 4QPCh. 12 - Prob. 5QPCh. 12 - Prob. 6QPCh. 12 - Prob. 7QPCh. 12 - Prob. 8QPCh. 12 - Prob. 9QPCh. 12 - Prob. 10QPCh. 12 - Prob. 11QPCh. 12 - Prob. 12QPCh. 12 - Prob. 13QPCh. 12 - Prob. 14QPCh. 12 - Prob. 15QPCh. 12 - Prob. 16QPCh. 12 - Prob. 17QPCh. 12 - Prob. 18QPCh. 12 - Prob. 19QPCh. 12 - Prob. 20QPCh. 12 - Prob. 21QPCh. 12 - Prob. 22QPCh. 12 - Prob. 23QPCh. 12 - Prob. 24QPCh. 12 - Prob. 1MCh. 12 - Prob. 2MCh. 12 - Prob. 3MCh. 12 - Prob. 4MCh. 12 - A measure of risk-adjusted performance that is...Ch. 12 - Prob. 6M
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