Reference no: EM131504403

Investors are driven by results; they place their funds in a particular investment, such as a stock or bond, and expect to receive a return on this investment that compensates them for allowing the organization to use their funds. In addition, investors may be taking on additional risk when compared to safer investments, such as government securities. They expect to be compensated for this additional risk as well. This week seeks to introduce the concepts associated with investment returns and understanding the risk that is involved. Measuring and analysing returns allows us to better understand the performance of an investment. returns associated with shares of common stock and uses comparisons of various types of securities to illustrate different levels of return and risk.

Two components of the return from an investment. First is the income component of a return, such as the dividend received from holding a stock or coupon payments received from bonds. Second, there is the capital appreciation component of an investment, such as a rise in the price of stock from the time it was purchased, or the capital losses that can be experienced when the price of stock drops. Dollar returns are simple to use and understand when measuring the return of an investment. This type of return simply measures the amount of additional funds that are earned (or lost) on an investment. This would include the monetary amount of dividends received, as well as the capital gain or loss experienced when the stock is sold.

The dollar and percentage returns enable investors to determine how much their investment yields over one period of time, whatever the length of this period (e.g. a day or a month or a year). But investors very often face several period returns, and need to determine how to aggregate them to reflect the overall performance of their investment.

the various types of returns

1) the arithmetic average return, Another approach is to calculate the geometric average return.

2) Another approach is to calculate the geometric average return

3) another type of return is the holding period return (HPR), which measures the total return of an

My question:

I need explanation and how to analyse and summarize the various types of returns that were mentioned above, are there better measures of return and how we can measure the risk of an investment. What is the issue with having two investments that have the same average return but different levels of risk? Reflecting on recent events, what is your opinion about using historical returns as a basis for forecasting future returns? What alternatives would you propose?

For Understanding the aspects of risk and Statistical measures of risk: hwo to analyse the degree to which yearly returns vary from the average return. Can we use The statistical measures of variability : variance and standard deviation the frequency distribution of equity returns on a histogram

Please provide examples to understand the practices and application with references for further reading to improve my understanding minimum 600 words.