High industry concentration (ie a small number of firms) High barriers to entry Low industry capacity

# Search results for 'return'

## Average Accounting Return

AAR = average net income / average book value

The bank discount yield is based on a 360-day year. The bank discount yield is annualized with simple interest. The bank discount yield is based on the face value of the bond.

## Continuously Compounded Return

The continuously compounded return, Rt,t+1, associated with a holding period is the natural logarithm of 1 plus that holding period return: Rt,t+1 = ln(1 + r)

Cov(Ra, Rb) = STDa * STDb * Cor(a, b) ϑ^2(Rp) = (Wa^2)(ϑ^2(Ra)) + (Wb^2)(ϑ^2(Rb)) + (2)(Wa)(Wb)(Cov(Ra, Rb)) STDp = Square Root of ϑ^2(Rp)

## The Law of Diminishing Returns

States that at some point, as more of a resource is used in a production process, holding other inputs constant, output increases at a decreasing rate.

## CAPM < Expected return of discounted future cash flows

Stock is undervalued Investor should buy CAPM considers risk of individual stocks relative to all other alternatives in the market

## CAPM > Expected return on discounted future cash flows

Stock is overvalued Security should be sold CAPM considers risk of individual stock relative to all other alternatives in the market

## The CAPM concludes that expected returns are:

a positive (linear) function of systematic risk

## Constant Growth Rate Model

Vj = D1 / (k – g) Vj = value of the stock J D1 = Current Dividend times (1 + g) = D0 * (1 + g) k = The required rate of return g = The constant growth rate of dividends g = ROE * (1 – dividend payout ratio)