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Return

In: Applied Fundamentals in Finance

Author

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  • Enzo Mondello

    (CfBS Center for Business Studies AG)

Abstract

The risk–return characteristics of individual assets play an important role in both portfolio construction and performance evaluation. In this chapter, the main focus is on returns. First, the periodic investment return is presented, which can be calculated as a simple (discrete) and continuous compounded return and for one or more periods. This is followed by an examination of the average returns of investments, which can be determined using the arithmetic or the geometric mean. While the performance of an investment can be assessed on the basis of the geometric mean return, the performance evaluation of an investor is carried out using the money-weighted return. In addition, the asset return can be broken down into a nominal and real component. The expected return consists of the risk-free interest rate and a risk premium and can be estimated using, for example, historical returns or a prospective scenario analysis.

Suggested Citation

  • Enzo Mondello, 2023. "Return," Springer Texts in Business and Economics, in: Applied Fundamentals in Finance, chapter 1, pages 3-27, Springer.
    • Handle: RePEc:spr:sptchp:978-3-658-41021-6_1
    DOI: 10.1007/978-3-658-41021-6_1
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