Rates and Returns

What the exam expects you to do

1. Interpret interest rates as required rates of return, discount rates, or opportunity costs and explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk.What an interest rate really is
2. Calculate and interpret different approaches to return measurement over time and describe their appropriate uses.Holding period return
3. Compare the money-weighted and time-weighted rates of return and evaluate the performance of portfolios based on these measures.Money-weighted vs time-weighted return
4. Calculate and interpret annualized return measures and continuously compounded returns, and describe their appropriate uses.Annualized and continuously compounded returns
5. Calculate and interpret major return measures and describe their appropriate uses.Gross, net, after-tax, real and leveraged returns