Discussion
Investment Returns & Risk Premiums
You have now read about capital market efficiency and methods used to analyze it. These concepts are very important to corporations. They are also helpful to individual investors, especially as these concepts pertain to finding ways to mitigate risk in individual investments or within a portfolio. It is also important to understand the differences between average returns, arithmetic returns, and geometric returns. Finally, understanding risk premiums is important to understand to know why different investments offer varying rates of return.
For this Discussion, read this week's resources. Put special emphasis on the various financial terms discussed in the resource.
Post a 200- to 250-word explanation ofaverage returns, arithmetic vs. geometric averages, and risk premiums. Also, explain how the average investor could benefit by knowing these concepts in order to assume the least amount of risk.
Be sure to support your work with specific citations from the Learning Resources and any additional sources.
Read a selection of your colleagues' postings.
Respond by Day 6 to two or more of your colleagues' postings in one or more of the following ways:
• Ask a probing question.
• Share an insight from having read your colleague's posting.
• Offer and support an opinion.
• Make a suggestion.
• Expand on your colleague's posting.
Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained from the comments your colleagues made.
Note: Refer to the Discussion Template in this week's Learning Resources for your main post and response.
Learning Resources
This page contains the Learning Resources for this week. Be sure to scroll down the page to see all of this week's assigned Learning Resources.
Required Resources
Readings
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2012). Essentials of corporate finance (8th ed.). New York, NY: McGraw-Hill/Irwin.
o Chapter 10, "Some Lessons from Capital Market History" (pp. 310-349)