2Return Defined The return is the total gain or loss experienced on an investment over a given period of time.Where:kt = actual, expected, or required rate of return during period tPt = price (value) of asset at time tPt-1 = price (value) of asset at time t ‑ 1Ct = cash (flow) received from the asset investment in the time period t ‑ 1 to t
3Return Measurement Where: ki = return for the ith outcome Pri = probability of occurrence of the ith outcomen = number of outcomes consideredApproach 1
4Example:Weighted value Possible Probability Return [(I) x (2)] outcomes (1) (2) (3) Asset A Pessimistic % 3.25% Most likely Optimistic Total 1.00 Expected return 15.00% Asset B Pessimistic .25 7% 1.75% Optimistic Total 1.00 Expected return 15.00%
5Hitunglah expected return berdasarkan 2 metode di atas! Approach 2Periode pengamatanTingkat returnProbabilitas200116%20%200218%200322%200417%200521%23%Hitunglah expected return berdasarkan 2 metode di atas!
6Risk Defined Risk is the chance of financial loss. A government bond that guarantees its holder $100 interest after 30 days has no risk, because there is no variability associated with the return.A $100 investment in a firm's common stock, which over the same period may earn anywhere from $0 to $200, is very risky due to the high variability of return.
7Risk Preferences Feelings about risk differ among managers (and firms).Risk‑indifferentRisk‑averseRisk‑seeking
9Risk of a Single Asset Risk Assessment Risk can be assessed using sensitivity analysis and probability distributions, which provide a feel for the level of risk embodied in a given asset.Sensitivity Analysis:Uses a number of possible return estimates to obtain a of the variability among outcomes.One common method involves estimating the pessimistic (worst), the most likely (expected), and the optimistic (best) returns associated with a given asset.The asset's risk can be measured by the range, which is found by subtracting the pessimistic outcome from the optimistic outcome.The greater the range for a given asset, the more variability, or risk, it is said to have.
10----------------------------------------------------------- Asset A Asset BInitial investment $10,000 $10,000Annual rate of returnPessimistic 13% 7%Most likely 15% 15%Optimistic 17% 23%Range 4% 16%
11Probability Distributions A probability distribution is a model that relates probabilities to the associated outcomes.The simplest type of probability distribution is the bar chart, which shows only a limited number of outcome‑probability coordinates.
12Continous Probability Distribution for asset A and B
13RisikoUnsystematic RiskSystematic riskJumlah jenis saham
14Unsystematic risk disebut juga Diversifiable risk, resiko yang masih dapat dihindari Mis : mogok karyawan, lawsuitsSystematic Risk disebut juga nonDiversifiable risk, resiko yang tidak dapat dihindariMis : interest rate risk, liquidity risk, market risk
15Types of Risk Business risk Financial risk Interest rate risk Liquidity riskMarket riskEvent riskExchange rate riskPurchasing power riskTax riskFirm-Specific RisksShareholder-Specific RisksFirm and Shareholder Risks
16Firm Specific Risk Business Risk : berkaitan erat dengan keuntungan Financial Risk : berkaitan dengan utang
17Shareholders Specific Risk Interest Rate Risk : berkaitan dengan perubahan tingkat bunga di pasarLiquidity Risk : berkaitan dengan penjualan asset yang secara mudah dengan harga yang wajar di pasarMarket Risk : berkaitan dengan index harga saham
18Firm and Shareholders Risk Event Risk : berkaitan dengan even2 atau peristiwa yang dapat mempengaruhi nilai perusahaanExchange Rate Risk : berkaitan dengan nilai tukar mata uang di kemudian hari beserta fluktuasinyaPurchasing – Power Risk : berkaitan dengan inflasi dan deflasiTax Risk : berkaitan dengan perubahan hukum pajak
19Risk Measurement Risk is measure with standard deviation, Approach 1
20Coefficient of Variation Coefficient of variation, CV, is a measure of relative dispersion that is useful in comparing the risk of assets with differing expected returns.The higher the coefficient of variation, the greater the risk.
22Return of a Portfolio Where: wj = proportion of the portfolio's total dollar value represented by assetkj = return on asset j
23Risk of Portfolio Portfolio return : ∑ (Proportion x Return X)+ (Proportion x Return Y)
24CorrelationCorrelation is a statistical measure of the relationship, if any, between series of numbers representing data of any kind, from returns to test scores.+1 for perfectly positively correlated series‑ 1 for perfectly negatively correlated seriesUncorrelated
25DiversificationThe concept of correlation is essential to developing an efficient portfolio.Combining negatively correlated assets can reduce the overall variability of returns.
26For example, assume that you manufacture machine tools For example, assume that you manufacture machine tools. The business is very cyclical, with high sales when the economy is expanding and low sales during a recession. If you acquired another machine‑tool company, with sales positively correlated with those of your firm, the combined sales would still be cyclical, and risk would remain the same.Alternatively, however, you could acquire a sewing‑machine manufacturer, which is countercyclical. It typically has low sales during economic expansion and high sales during recession (when consumers are more likely to make their own clothes). Combination with the sewing‑machine manufacturer, which has negatively correlated sales, should reduce risk.
28Correlation, Diversification, Risk, and Return The lower the correlation between asset returns, the greater the potential diversification of risk.T A B L E 6. 6,Correlation, Return, and Risk for Various Two‑Asset Portfolio CombinationsCorrelationcoefficient Range of return Range of risk+ 1 (perfect positive) Between returns of two assets Between risk of twoheld in isolation assets held in isolation0 (uncorrelated) Between returns of two assets Between risk of mostheld in isolation risky asset and anamount less than riskof least risky asset butgreater than 0-1 (perfect negative) Between returns of two assets Between risk of mostheld in isolation risky asset and 0
29ExampleA firm has calculated the expected return and the risk for each of two assets‑R and S.Asset Expected return Risk (standard deviation), R 6% 3%S
30Risk and Return: The Capital Asset Pricing Model (CAPM)
31Total security risk = nondeversifiable risk + diversifiable risk Diversifiable risk, sometimes called unsystematic risk, represents the portion of an asset's risk that is associated with random causes that can be eliminated through diversification (strikes. lawsuits, regulatory actions)Nondiversifiable risk, also called systematic risk, is attributable to market factors that affect all firms; it cannot be eliminated through diversification.Factors such as war, inflation international incidents, and political events account for nondiversifiable risk.
32Beta CoefficientBeta coefficient, b, measures nondiversifiable risk. It is an index of the degree of movement of an asset's return in response to a change in the market return.An asset's historical returns are used in finding the asset's beta coefficient.The market return is the return on ‑the market portfolio of all traded securities.Beta Individual:n (∑XY) – (∑X) (∑Y)n (∑X2) – (∑X)2Dimana X adalah Return pasar (IHSG)Beta portfolio:∑ (Proporsi x beta A) + (Proporsi x beta B)
33Jika beta >1 berarti saham tersebut memiliki risiko yang lebih tinggi dari risiko pasar (IHSG) dan saham tersebut termasuk saham agresif.Sebaliknya jika Beta < 1 maka risiko lebih rendah dari risiko IHSG saham defensif
36 The Model: CAPMThe capital asset pricing model (CAPM) links together nondiversifiable risk and return for all assets.CAPM:Risk Free (SBI) beta = 0Return Market (IHSG)/ beta pasar beta =1CAPM= Rf + (β x (Rm-Rf))
37The Graph: The Security Market Line (SML) When the capital asset pricing model is depicted graphically, it is called the security market line (SML).The SML will, in fact, be a straight line.It reflects the required return in the marketplace for each level of nondiversifiable risk (beta).In the graph, risk as measured by beta, b, is plotted on the x axis, and required returns, k, are plotted on the y axis.
38Jika Expected return, E(R) < SML = overvalue Dan Jika Expected return, E(R) > SML = undervalue
39Risk free rate= 15% Market return= 20% Tentukan return yang diisyaratkan (CAPM/ SML) untuk setiap asset di atas dan gambarlah grafik SML serta tentukan Asset yang undervalue atau overvalue!
40Grafik SML SML C 25 Undervalue Required return 20 Equilibrium B 15 Rf E(R)CA = E(R)A20EquilibriumE(R)BB15RfOvervalue1050.51.01.52.02.5Risk (Beta)