Share Price Behaviour and Investment Performance

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What is the formula to calculate the holding period rate of return on an investment over a single holding period of length t?

Rt = (Pt - Pt-1) / Pt-1

Rt = (Pt - Pt-1 + Ct) / Pt-1

Rt = (Pt + Ct) / Pt-1

Rt = (Pt + Ct - Pt-1) / Pt-1 (correct)

What would be the annualised return for Medlock Plc from 1/1/18 to 30/6/18?

8.75%

12.00%

10.25% (correct)

5.00%

What is the return on investment if the price of a security increases from £50 to £60 over a year, with a dividend of £2?

28.00%

20.00%

24.00% (correct)

16.00%

If a share price increases from £100 to £105, and a dividend of £2 is paid, what is the total return?

7.00% Signup and view all the answers

What would be the return for Progen Plc over the 9 months to November 2018?

-43.11% Signup and view all the answers

How would you annualise a 6-month return of 5%?

(1 + 0.05) 12 / 6 - 1 Signup and view all the answers

What is the purpose of calculating investment returns?

To evaluate the investment's performance Signup and view all the answers

What is the average return when the returns are 0.04, -0.03, 0.01, 0.12, and 0.16?

0.06 Signup and view all the answers

What is the deviation of return in period 1 from the average return?

-0.02 Signup and view all the answers

What is the sum of squared deviations?

0.0246 Signup and view all the answers

What is the squared difference between the return in period 2 and the average return?

0.0081 Signup and view all the answers

What is the return in period 3?

0.01 Signup and view all the answers

What is the sum of the deviations from the average return?

0.00 Signup and view all the answers

What is the purpose of calculating the sum of squared deviations?

To calculate the sum of squared deviations to use in further analysis Signup and view all the answers

What is the formula to calculate the holding period return over 1 to T?

(1 + R1) × (1 + R2) × … × (1 + RT) - 1 Signup and view all the answers

What is the arithmetic average return formula?

(R1 + R2 + … + RT) / T Signup and view all the answers

What is the formula to calculate the sample standard deviation of return?

s(R) = [(R1 - R) ^ 2 + (R2 - R) ^ 2 + … + (RT - R) ^ 2] / (T - 1) Signup and view all the answers

What is the main purpose of calculating the standard deviation of return?

To measure the volatility of returns Signup and view all the answers

What is the formula to calculate the geometric average return?

[(1 + R1) × (1 + R2) × … × (1 + RT)] ^ (1/T) - 1 Signup and view all the answers

What is the holding period return calculated in the example?

32.37% Signup and view all the answers

What is the purpose of calculating the holding period return?

To calculate the total return over a period of time Signup and view all the answers

What is the formula to calculate the variance of returns?

s^2 = (∑(R - R)^2) / (T - 1) Signup and view all the answers

What is the purpose of calculating the standard deviation of returns?

To measure the volatility of returns Signup and view all the answers

What is the main characteristic of an informationally efficient market?

Prices reflect all information available to investors Signup and view all the answers

What is the formula to calculate the standard deviation of returns?

s = √(s^2) Signup and view all the answers

What is the main purpose of the arithmetic average return?

To measure the return of an investment Signup and view all the answers

What is the main characteristic of a risky return?

High return and high risk Signup and view all the answers

What is the purpose of calculating the variance of returns?

To measure the risk of an investment Signup and view all the answers

What is the primary implication of the informationally efficient market for investors?

Active traders, on average, perform no better than passive investors. Signup and view all the answers

What is the characteristic of new information in the context of information efficiency?

It is independent of previous information. Signup and view all the answers

What is the result of price overreaction and subsequent correction?

Share price underreaction to new information. Signup and view all the answers

Why do unexpected price changes occur in an informationally efficient market?

Due to new information that is independent of previous information. Signup and view all the answers

What is the primary reason prices react immediately to new information?

Because only the unexpected part of news is information. Signup and view all the answers

What is the primary implication of information efficiency for predicting returns?

Unexpected returns are random and cannot be predicted. Signup and view all the answers

What is the relationship between new information and previous information in an informationally efficient market?

New information is unrelated to previous information. Signup and view all the answers

What is the primary characteristic of prices in an informationally efficient market?

Prices reflect all available information. Signup and view all the answers

What is the result of underreaction and gradual adjustment in an informationally efficient market?

Informationally efficient reaction. Signup and view all the answers

What is the primary implication of information efficiency for passive investors?

Passive investors can expect a fair return. Signup and view all the answers

What is the primary driver of price changes in an informationally efficient market?

New information that is independent of previous information. Signup and view all the answers