Professional Documents
Culture Documents
• Determined by:
– Supply
– Demand
– Government actions
– Expected rate of inflation
R r E (i )
• RThe
(1 after-tax
t ) i (real
r irate
)(1 oft )return
i rfalls
(1 as
t ) the
it
inflation rate rises.
100
rf (T ) 1
P(T )
1 EAR 1 rf T 1
T
APR
1 EAR
T
1
T
E (r ) p( s)r ( s)
s
Variance (VAR):
p( s) r ( s ) E (r )
2 2
STD 2
1 n
E (r ) s 1 p ( s )r ( s ) s 1 r ( s )
n
g= geometric average
rate of return
^ 2 _ 2
1 n
r s r
n s 1
_ 2
^ 1
n
r s r
n 1 j 1
Risk Premium
SD of Excess Returns
_ 3
_ 4
R R
R R
skew average ^ kurtosis average ^ 3
3
4
• Negative skew
T
12
2
1
g gT
[1 E (r )]
T T
e 20
e 20