CSCNotes-Chapter15.docxVIP

??What is Risk and Return?Different funds developed for different degree of risk tolerance: GIC – Safety, Fixed-income Funds – Income, Equity Funds – Growth/capital appreciation. Expected Return = Cash Flow ± Capital Gain/Loss (Dividends, Interests) (Ending Value – Beginning Value)Rate of ReturnHistorical ReturnsNominal Real Rates of ReturnReal Return = Nominal Rate – Annual Rate of InflationThe Risk-Free Rate of Return – T-bills are considered risk-free, Yield of T-bill = Short-term inflation + Real ReturnRisk – the likelihood the actual return will be different from expected, the