1. Major Return Measures
a. calculate and interpret major return measures and describe their appropriate uses;
What is the formula for Holding Period Return? \(R_t = \frac{P_t - P_{t - 1} + D_t}{P_{t-1}}\)
What is the formula for Mean Return? \(\mu = \frac{\sum X_i}{N}\)
What is the formula for Geometric Mean Return? \(G = \sqrt[n]{X_1 X_2 X_3 ... X_n}\)
What is the dollar weighted rate of return? The dollar-weighted rate of return is essentially the internal rate of return (IRR) on a portfolio.
What is time-weighted rate of return? The time-weighted rate of return measures the compound growth rate of $1 initial investment over the measurement period.
What is the formula for return on a portfolio of assets?
\(E(R_p) = \sum\limits_{i} \omega_i E(R_i)\)
- R_p = Return on the portfolio
- R_i = Return on asset i
- \omega_i = Weighting (share) of asset i
Source:
CFA
Graph:
- 115.100.02 Portfolio Management - Reading 52 - Portfolio Risk and Return Part I to 115.100.02.01 Portfolio Management - Reading 52 - 1. Major Return Measures