asset - provides flow of money/services to its owner
- capital gain - increase in value of asset
- unrealized until asset is sold
- capital loss - decrease in value of asset
- risky asset - random monetary flow, could rise or fall
- riskless asset - pays certain monetary flow, such as bonds
- usually grows slower than risky assets
- return - total monetary flow an asset yields
- includes either capital gain/loss as fraction of its price (given in percentages)
- real return - return after taking into account inflation
- investments should grow faster than inflation, or worthless
- higher expected return usually means
investment portfolio - determines how much to invest in each asset
- R = bR1 + (1-b)R2 = R2 + b(R1-R2)
Subject:
Subject X2:
