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Expected return-beta relationship |
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Definition of Expected return-beta relationshipExpected return-beta relationshipImplication of the CAPM that security risk premiums will be
Related Terms:CARs (cumulative abnormal returns)a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock. Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. Annualized holding period returnThe annual rate of return that when compounded t times, would have Arithmetic average (mean) rate of returnArithmetic mean return. Arithmetic mean returnAn average of the subperiod returns, calculated by summing the subperiod returns Average accounting returnThe average project earnings after taxes and depreciation divided by the average Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Beta (Mutual Funds)The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means Beta equation (Mutual Funds)The beta of a fund is determined as follows: Beta equation (Stocks)The beta of a stock is determined as follows: Country betaCovariance of a national economy's rate of return and the rate of return the world economy Cumulative abnormal return (CAR)Sum of the differences between the expected return on a stock and the Dollar returnThe return realized on a portfolio for any evaluation period, including (1) the change in market Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Ex post returnRelated: Holding period return Exante returnThe expected return of a portfolio based on the expected returns of its component assets and Excess return on the market portfolioThe difference between the return on the market portfolio and the Excess returnsAlso called abnormal returns, returns in excess of those required by some asset pricing model. Expected future cash flowsProjected future cash flows associated with an asset of decision. Expected future returnThe return that is expected to be earned on an asset in the future. Also called the Expected returnThe return expected on a risky asset based on a probability distribution for the possible rates Expected return on investmentThe return one can expect to earn on an investment. See: capital asset Expected valueThe weighted average of a probability distribution. Expected value of perfect informationThe expected value if the future uncertain outcomes could be known Foreign market betaA measure of foreign market risk that is derived from the capital asset pricing model. Fundamental betaThe product of a statistical model to predict the fundamental risk of a security using not Geometric mean returnAlso called the time weighted rate of return, a measure of the compounded rate of Holding period returnThe rate of return over a given period. Horizon returnTotal return over a given horizon. Incremental internal rate of returnIRR on the incremental investment from choosing a large project Internal rate of returnDollar-weighted rate of return. Discount rate at which net present value (NPV) Leveraged betaThe beta of a leveraged required return; that is, the beta as adjusted for the degree of Leveraged required returnThe required return on an investment when the investment is financed partially by debt. Market returnThe return on the market portfolio. Money rate of returnAnnual money return as a percentage of asset value. Multiple rates of returnMore than one rate of return from the same project that make the net present value Portfolio internal rate of returnThe rate of return computed by first determining the cash flows for all the Price-volume relationshipA relationship espoused by some technical analysts that signals continuing rises Principal-agent relationshipA situation that can be modeled as one person, an agent, who acts on the behalf Put-call parity relationshipThe relationship between the price of a put and the price of a call on the same Rate of return ratiosRatios that are designed to measure the profitability of the firm in relation to various Realized returnThe return that is actually earned over a given time period. Required returnThe minimum expected return you would require to be willing to purchase the asset, that is, ReturnThe change in the value of a portfolio over an evaluation period, including any distributions made Return on assets (ROA)Indicator of profitability. Determined by dividing net income for the past 12 months Return on equity (ROE)Indicator of profitability. Determined by dividing net income for the past 12 Return on investment (ROI)Generally, book income as a proportion of net book value. Return on total assetsThe ratio of earnings available to common stockholders to total assets. Return-to-maturity expectationsA variant of pure expectations theory which suggests that the return that an Riskless rate of returnThe rate earned on a riskless asset. Safety-net returnThe minimum available return that will trigger an immunization strategy in a contingent Subperiod returnThe return of a portfolio over a shorter period of time than the evaluation period. T-period holding-period returnThe percentage return over the T-year period an investment lasts. Time-weighted rate of returnRelated: Geometric mean return. Total dollar returnThe dollar return on a nondollar investment, which includes the sum of any Total returnIn performance measurement, the actual rate of return realized over some evaluation period. In Unleveraged betaThe beta of an unleveraged required return (i.e. no debt) on an investment when the Unleveraged required returnThe required return on an investment when the investment is financed entirely Zero-beta portfolioA portfolio constructed to represent the risk-free asset, that is, having a beta of zero. RATE OF RETURN ON STOCKHOLDERS’ EQUITYThe percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it: RATE OF RETURN ON TOTAL ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: RETURN ON INVESTMENT (ROI)In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole. Accounting rate of return (ARR)A method of investment appraisal that measures Internal rate of return (IRR)A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an Return on capital employed (ROCE)The operating profit before interest and tax as a percentage of the total shareholders’ funds plus Return on investment (ROI)The net profit after tax as a percentage of the shareholders’ investment in the business. Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the Purchase returnsA contra account that reduces purchases by the amount of items purchased that were subsequently returned. Sales returnsA contra account that offsets revenue. It represents the amount of sales made that were later returned. internal rate of return (IRR)The precise discount rate that makes the return on assets (ROA)Although there is no single uniform practice for return on equity (ROE)This key ratio, expressed as a percent, equals net return on investment (ROI)A very general concept that refers to some return on salesThis ratio equals net income divided by sales revenue. BetaA measure of the riskiness of a specific security compared to the Expected ValueThe value of the possible outcomes of a variable weighted by the Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash Return on Common Equity RatioA measure of the percentage return earned on the value of the Return on Total Assets RatioA measure of the percentage return earned on the value of the accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow expected capacitya short-run concept that represents the expected standardstandard set at a level that reflects what internal rate of return (IRR)the expected or actual rate of return of capitalthe recovery of the original investment (or principal) in a project return on capitalincome; it is equal to the rate of return multiplied by the amount of the investment return on investmenta ratio that relates income generated total expected value (for a project)the sum of the individual cash flows in a probability distribution multiplied by their related probabilities BetaThe price volatility of a financial instrument relative to the price Internal rate of return a. The average annual yield earned by an investment during the period held. Internal rate of returnThe rate of return at which the present value of a series of future betaSensitivity of a stock’s return to the return on the market book rate of returnAccounting income divided by book value. internal rate of return (IRR)Discount rate at which project NPV = 0. rate of returnTotal income per period per dollar invested. ReturnSee yield. Absolute Right of ReturnGoods may be returned to the seller by the purchaser without restrictions. Right of ReturnA sales agreement provision that permits a buyer to return products purchased Inventory returnsInventory returned from a customer for any reason. This receipt
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