Risk and Return. Introduction. Investment has two aspects: Security Analysis and Portfolio Analysis Security analysis consists of valuation of financial assets. Value is the function of risk and return. Realized risk (ex-ante) and return and Expected Risk and return (ex-post). Return.
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Capital Gain (loss): The change in price on a security over some period of time or
Geometric mean is the nth root of the product of returns for n years.
Geometric mean = (1+R1)x(1+R2)x(1+R3)1/n – 1
GM = [(1+ 15%) x (1+30%) x (1+ (-12))]1/3 – 1
GM = [(1.15)(1.30)(0.88)] 1/3 – 1
GM = 1.096 – 1
GM = 0.096 or 9.6%