Returns I: Basic concepts
We’ll start easy, with a few concepts, definitions, and notation that we’ll use throughout the book. In this first chapter we’ll discuss simple returns, continuously compounded returns, and multi-period returns, along with a few other things. We’re just going to warm-up.
Table 1.1 shows the year-end stock price (p) of Coca-Cola between 2000 and 2009, and the annual dividend per share (D) paid by the company in each of those years. Suppose we had bought a share of Coca-Cola at the end of 2008 and sold it at the end of 2009; what would have been our one-year return?
That’s easy. We bought ...