Returns
Chapters in this video
- 0:00 Total return and holding period return formula
- 1:42 Geometric vs arithmetic averaging trap
- 2:57 Time-weighted return and dollar-weighted return
- 4:33 Indexed returns: benchmark vs credited
- 5:27 Sharpe, Treynor, and Jensen's alpha
- 6:40 Tax-equivalent yield and AMT preference item
- 7:42 Rapid-fire exam recap
What this video covers
- Why total return and holding period return share one formula yet differ in a critical way: HPR is never annualized
- How geometric averaging captures true compound growth, and why arithmetic averaging overstates results when periodic returns vary
- When time-weighted return (TWR) isolates manager skill by stripping out cash flows, and when dollar-weighted return (IRR) reflects the investor's actual experience
- Why Global Investment Performance Standards (GIPS) requires time-weighted return for fair manager evaluation
- How indexed returns appear in two completely different forms: benchmark-relative return versus an indexed product's credited return with caps, participation rates, and spreads
- What the Sharpe ratio, Treynor ratio, and Jensen's alpha each measure, and which type of risk (total or systematic) applies to each
- How to calculate tax-equivalent yield for municipal bonds, and when qualified private activity bonds trigger the alternative minimum tax (AMT)
Read the full lesson, free
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