The forward-difference formula can be expressed as /'(*o) = pf/Uo + h) - fixo)] - ^f'ixo) - ^f'ixo) + Oif). h 2 6 Use extrapolation to derive an Oih3 ) formula for /'(xq).

Empirical Facts on Stock Returns Expected Return s= State r(s)= Return if a r state occurs Nominal interest rate ( nominal: Growth rate of money p(s)= Probability of a state Real interest rate ( r ): Growth rate of purchasing real power Rate of inflation: i The relationship: rnominal rreal+i Variance and Standard Deviation Exact relationship: Variance: The equilibrium nominal rate of return: 2 Real after-tax rate: