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02 Lecture12
02 Lecture12
Introduction
12000
10000
8000
6000
4000
2000
0
Jan-35
Jan-40
Jan-45
Jan-65
Jan-70
Jan-90
Jan-95
Jan-30
Jan-50
Jan-55
Jan-60
Jan-75
Jan-80
Jan-85
Jan-00
An overview of market performance
– is there risk?
Monthly % Change in DJIA (Dow 30)
January 1930 to October 2002
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Jan-30
Jan-35
Jan-45
Jan-50
Jan-55
Jan-65
Jan-70
Jan-80
Jan-85
Jan-90
Jan-00
Jan-40
Jan-60
Jan-75
Jan-95
An overview of market performance
– is there risk?
NASDAQ Composite Index
November 1984-October 2002
5200
4700
4200
3700
3200
2700
2200
1700
1200
700
200
Nov-84
Nov-86
Nov-88
Nov-90
Nov-92
Nov-94
Nov-96
Nov-98
Nov-00
An overview of market performance
– is there risk?
Monthly % Change in
NASDAQ Composite Index
October 1984 to October 2002
30%
20%
10%
0%
-10%
-20%
-30%
Nov-84
Nov-86
Nov-88
Nov-90
Nov-92
Nov-94
Nov-96
Nov-98
Nov-00
An overview of market performance
– is there risk?
S&P/TSX Composite Index
April 1984 - October 2002
12000
11000
10000
9000
8000
7000
6000
5000
4000
3000
2000
Apr-86
Apr-91
Apr-93
Apr-98
Apr-02
Apr-84
Apr-85
Apr-87
Apr-88
Apr-89
Apr-90
Apr-92
Apr-94
Apr-95
Apr-96
Apr-97
Apr-99
Apr-00
Apr-01
An overview of market performance
– is there risk?
Monthly % Changes of
S&P/TSX Composite Index
April 1984-October 2002
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
May-87
May-93
May-94
May-95
May-84
May-85
May-86
May-88
May-89
May-90
May-91
May-92
May-96
May-97
May-98
May-99
May-00
May-01
May-02
Measuring Performance: Returns
Dollar return (over one period):
= Dividends + End of Period Price – Beginning of Period Price
Percentage return (over one period):
=Dollar return/Beginning of Period Price
=(Dividends + End of Period Price)/Beginning of Period Price -1
Examples: calculate both $ and % returns
1. P0=$50, Div1=$2, P1=$55.50
2. P0=$20, Div1=$0.25, P1=$12.75
3. P0 = $30, Div1=$1, Capital Gain=$5
4. P0 = $130, Div1=$0, Capital Loss=$128
Holding Period Returns
Let Rt be the observed T
1 HPR 1 to T 1 R t
return earned in year t,
then the holding period
return over a T-period t 1
time frame is as follows: