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Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 5 The Theory of Portfolio Allocation
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-2 Determinants of Portfolio Choice Theory of Portfolio Allocation: seeks to answer questions about portfolio choice and predicts how a saver distributes his or her savings across investments Determinants of Portfolio Choice are: Saver’s wealth to be allocated Expected return as compared to other investments The degree of risk of the asset compared to other assets The liquidity of the asset compared to other assets The cost of acquiring information about the asset
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-3 Figure 5.1 Portfolios of U.S. Households: 2006, 1970, 1950
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-4 Table 5.1 Determinants of Asset Allocation
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-5 Advantages of Diversification Diversification is the allocation of savings among many different assets. Holding multiple assets reduces risk.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-6 Types of Risk Market risk is common risk across assets and can’t be eliminated. Systematic risk is unique to an asset and can be eliminated. Beta is a measure of systematic risk.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-7 Figure 5.2 Reducing Risk Through Stock Portfolio Diversification
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 5-8 Explaining Portfolio Allocation Determinants of portfolio choice and diversification explain portfolio changes. Rise in wealth decreased checking balances. Assets in pension plans are rising due to tax deferral. Assets in mutual funds increased due to lower risk and information costs and greater liquidity.
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Lesson 9.3 Low Risk Investments July 2011Copyright © … REMTECH, inc … All Rights Reserved1 Introduction The probability you will lose money in.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 12 Keynesian Business Cycle Theory: Sticky Wages and Prices.
Chapter 19 Globalization and International Investing Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Copyright © 2004 South-Western 26 Saving, Investment, and the Financial System.
6 - 1 Copyright © 2002 by Harcourt, Inc All rights reserved. CHAPTER 6 Risk and Return: The Basics Basic return concepts Basic risk concepts Stand-alone.
©2009, The McGraw-Hill Companies, All Rights Reserved Chapter One Introduction.
Copyright© 2003 John Wiley and Sons, Inc. Power Point Slides for: Financial Institutions, Markets, and Money, 8 th Edition Authors: Kidwell, Blackwell,
Copyright ©2004 Pearson Education, Inc. All rights reserved. Chapter 1 Overview of a Financial Plan.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 5 Beyond Comparative Advantage.
Essex EC248-2-SP Lecture 1 Money, Banking and the Financial System: An Introduction Alexander Mihailov, 16/01/06.
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Slides prepared by Thomas Bishop Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Money, Interest Rates, and Exchange Rates.
Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 7 McGraw Hill/Irwin Copyright © 2003.
Financial Management –Spring 2013 Chapter 2: Financial Markets And Institutions 1.The Importance of Financial Institutions 2.The Flow of Savings to Corporations.
© 2012 VSA, LP Valid only if used prior to January 1, The information, general principles and conclusions presented in this report are subject to.
ECO102 Principles of Macroeconomics Problem Session-2 by Research Assistant Serkan Değirmenci
© 2010 Pearson Addison-Wesley. To study the economics of financial institutions and markets we distinguish between Finance and money Physical capital.
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1 MN10311 Revision Session. 2 MN10311 Revision Session Objective of Financial Management Agency Time value of money Investment decision Risk, return and.
CHAPTER 5 PORTFOLIO RISK AND RETURN: PART I Presenter Venue Date.
Copyright © 2002 by Harcourt, Inc.All rights reserved. Types of mergers Merger analysis Role of investment bankers LBOs, divestitures, and holding.
The Pricing Of Risk Understanding the Risk Return Relation.
STRATEGIC ASSET ALLOCATION James Thompson Government Actuarys Department United Kingdom.
Chapter 11SectionMain Menu Saving and Investing How does investing contribute to the free enterprise system? How does the financial system bring together.
P.V. VISWANATH. 2 How is cash returned? The Mechanics How do we choose between dividends and Share Repurchases? Why Dividends and Share Repurchases are.
BellWork “Diversification” Where are you diversified in you current lives? What about the clothes you wear, the classes you take, the food you eat, etc.?
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