Analytical study on the risk & return of selected company securities traded in BSE Sensex
Return is the primary motivating force that drives investment. It represents the rewardfor undertaking investment. Since the game of investing is about returns (after allowing for risk), measurement of realized (historical) returns is necessary to assess how well theinvestment manager has done.In addition, historical returns are often used as an important input in estimating future prospective returns.
Components of Return:
The return of an investment consists of two components.
The first component that often comes to mind when one is thinking about return is the periodic cash flow, such as dividend or interest, generated by the investment. Current return ismeasured as the periodic income in relation to the beginning price of the investment.
The second component of return is reflected in the price change called the capitalreturn- it is simply the price appreciation (or depreciation) divided by the beginning price of theasset. For assets like equity stocks, the capital return predominates.Thus, the total return for anysecurity (or for that matter any asset) is defined as:
Total Return = Current return + Capital return
The current return can be zero or positive, whereas the capital return can be negative,zero, or positive.
RISK AND RETURN ANALYSIS
CMR CENTER FOR BUSINESS STUDIES