Equity question: ex ante/holding period return

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grace grace

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folks any thoughts:
A stock price today is $20 and it is expected to hit $30 in TWO years. If the dividend for year 1 is $5 and $3 for year 2. what is the holding period return? what is the ex-ante alpha over the period. Assume a required rate of return of 10%.
 
I would think so.
ex ante alpha = expected holding-period return - Required return
That implies your required return amount matches the duration of your holding-period.
If in your example the required rate of return was 10% per year then I would have done it as follows:
required return = 1.1^2 = 1.21 = 21%
90% - 21% = 69%
Did you actually see a question on this or are you just wondering “what if?”.
 
I haven’t looked at this stuff yet at all, but I would assume that the results would normally be annualized.
((30+8)/20)-1=90% over two years
So it would be more like 45-10=35 if that is the case. Doesn’t work perfect because I am not using geometric returns.
I could be way off.
 
I have not seen any question asking for ex ante alpha for more than 12 months yet….if anyone else has, let us know.
 
Quick question: I thought I understood ex-ante vs. ex-post. My understanding was ex-ante is “expected - required return” and ex-post is “actual - benchmark”. But I just read the hedge fund readings where they refer to Jensen’s ex-post alpha as Expected - Required Return. I’m confused - can anyone clarify?
 
I was under the impression Ex-ante is based on predictions, Expected Return - Required return, while Ex-post is after-the-fact, holding period return - benchmark.
 
HPR agree 90%
ex ante, 20 x 1.1 x 1.1 = 24.2 as your expected return.
so 38 - 24.2/ 20 = 69% ex ante alpha
or the way wandering did it above all in %’s seems ok to me, no?
 
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