Introduction to Risk and Return

Slides:

Advertisements

Similar presentations

Principles of Corporate Finance

Advertisements

Question 1 (textbook p.312, Q2)

VARIANS DAN STANDAR DEVIASI PORTFOLIO Pertemuan 10 Matakuliah: F Analisis Kuantitatif Tahun: 2009.

11- 1 McGraw Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved Fundamentals of Corporate Finance Sixth Edition Richard.

Chapter 8 Risk and Return. Topics Covered  Markowitz Portfolio Theory  Risk and Return Relationship  Testing the CAPM  CAPM Alternatives.

Chapter 8 Principles PrinciplesofCorporateFinance Tenth Edition Portfolio Theory and the Capital Asset Pricing Model Slides by Matthew Will Copyright ©

 Risk and Return Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 8 © The McGraw-Hill Companies, Inc., 2000.

Introduction to Risk and Return

Chapter 8 Principles of Corporate Finance Eighth Edition Risk and Return Slides by Matthew Will Copyright © 2006 by The McGraw-Hill Companies, Inc. All.

The McGraw-Hill Companies, Inc., 2000

Risk-Return Problems 7. Calculating Returns and Deviations Based on the following information, calculate the expected return and standard deviation for.

Today Risk and Return Reading Portfolio Theory

Copyright © 2006 McGraw Hill Ryerson Limited10-1 prepared by: Sujata Madan McGill University Fundamentals of Corporate Finance Third Canadian Edition.

Introduction to Risk, Return, and The Opportunity Cost of Capital

1 Chapter 09 Characterizing Risk and Return McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Slide no.: 1 Prof. Dr. Rainer Stachuletz – Berlin School of Economics Betriebswirtschaftliche Bewertungsmethoden Grundlagen der Gestaltung effizienter.

Beta Prof. André Farber SOLVAY BUSINESS SCHOOL UNIVERSITÉ LIBRE DE BRUXELLES.

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model 723g28 Linköpings Universitet, IEI 1.

 Introduction to Risk, Return, and the Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will.

CORPORATE FINANCE V ESCP-EAP - European Executive MBA Dec. 2005, London Risk, Return, Diversification and CAPM I. Ertürk Senior Fellow in Banking.

Calculating Expected Return

Last Study Topics Project Analysis Project Interaction – Equivalent Annual Cost – Replacement – Project Interaction – Timing – Fluctuating Load Factors.

Risk and Capital Budgeting Chapter 13. Chapter 13 - Outline What is Risk? Risk Related Measurements Coefficient of Correlation The Efficient Frontier.

13-0 Expected Returns 13.1 Expected returns are based on the probabilities of possible outcomes In this context, “expected” means average if the process.

 Introduction to Risk, Return, and the Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will.

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Portfolio risk and return measurement Module 5.2.

FIN 351: lecture 6 Introduction to Risk and Return Where does the discount rate come from?

Introduction to Risk and Return

Introduction to risk, return, and the opportunity

Lecture 24. Example Correlation Coefficient =.4 Stocks  % of PortfolioAvg Return ABC Corp2860% 15% Big Corp42 40% 21% Standard Deviation = weighted.

 Risk and Return Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will Chapter 8 © The McGraw-Hill Companies, Inc., 2000.

Lecture 8 Risk and Return Managerial Finance FINA 6335 Ronald F. Singer.

11-1 Lecture 11 Introduction to Risk, Return, and the Opportunity Cost of Capital.

Introduction to Risk and Return and opportunity cost of capital Chapter 11 BBM 08/29/12 1.

1 Expected Rate of Return and Variance Assume the Following Investment Alternatives EconomyProb.T-BillStock Anh Stock Binh Stock Cuc Market Recession 0.10.

Seminar: Timely Topics for Today’s Business World Mr. Bernstein Risk January 2015.

Real Estate Investments David M. Harrison, Ph.D. Texas Tech University  Expected Rate of Return -  Example: Risk & Return.

FIN 819: lecture 4 Risk, Returns, CAPM and the Cost of Capital Where does the discount rate come from?

Introduction of Risk and Return Text: Chapter 9. Introduction to Risk and Return Common stocks 13.0% 9.2% 20.3% Small-company stocks Long-term.

Chapter 8 Principles of Corporate Finance Tenth Edition Portfolio Theory and the Capital Asset Model Pricing Slides by Matthew Will McGraw-Hill/Irwin Copyright.

Principles of Corporate Finance Sixth Edition Richard A. Brealey Stewart C. Myers Lu Yurong Chapter 8 McGraw Hill/Irwin Risk and Return.

Risk /Return Return = r = Discount rate = Cost of Capital (COC)

Chapter 11 Fundamentals of Corporate Finance sixth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.

Session 5 Standard Deviation of a Portfolio, Concept and Calculation

Introduction to risk and return

Introduction to Risk and Return Common stocks 13.0% 9.2% 20.3% Small-company stocks Long-term corporate bonds Long-term government.

Portfolio theory and the capital asset pricing model

Return, Risk, and the Security Market Line

Last Study Topics 75 Years of Capital Market History Measuring Risk

Lecture 7 Introduction to Risk, Return, and the Opportunity Cost of Capital Managerial Finance FINA 6335 Ronald F. Singer.

Chapter 8 Principles PrinciplesofCorporateFinance Ninth Edition Introduction to Risk, Return, and The Opportunity Cost of Capital Slides by Matthew Will.

 Introduction to Risk, Return, and the Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will.

FIGURE 12-1 Walgreens and Microsoft Stock Prices, 1996–2001 Melicher & Norton/Finance: Introduction to Institutions, Investments, and Management, 11th.

Chapter 8 Principles PrinciplesofCorporateFinance Ninth Edition Introduction to Risk, Return, and The Opportunity Cost of Capital Slides by Matthew Will.

David KilgourLecture 11 Foundations of Finance Lecture 1 Portfolio Theory Read: Brealey and Myers Chapter 8.

Expected Return and Variance

Chapter 11 Learning Objectives

FIGURE 12.1 Walgreens and Microsoft Stock Prices,

Financial Analysis, Planning and Forecasting Theory and Application

Introduction to Risk, Return, and the Opportunity Cost of Capital

Some Lessons from Capital Market History

Questions-Risk, Return, and CAPM

Chapter 8 Portfolio Theory and the Capital Asset Pricing Model

Midterm 2 Spring 2017.

Extra Questions.

The McGraw-Hill Companies, Inc., 2000

The McGraw-Hill Companies, Inc., 2000

Portfolio Theory and the Capital Asset Pricing Model

Introduction to Risk & Return

Presentation transcript:

Introduction to Risk and Return Slides by Matthew Will

Histogram of Annual Stock Market Returns (1900-2014) Measuring Risk Histogram of Annual Stock Market Returns (1900-2014)

Measuring Risk Variance Average value of squared deviations from mean A measure of volatility Standard Deviation

Measuring Risk Coin Toss Game-calculating variance and standard deviation

Measuring Risk 19

Portfolio Risk The variance of a two stock portfolio is the sum of these four boxes 19

Portfolio Risk Example Suppose you invest 60% of your portfolio in JNJ and 40% in Ford. The expected dollar return on your JNJ is 8.0% and on Ford is 18.8%. The expected return on your portfolio is: 19

Portfolio Risk Example Suppose you invest 60% of your portfolio in JNJ and 40% in Ford. The expected dollar return on your JNJ is 8.0% and on Ford is 18.8%. The standard deviation of their annualized daily returns are 13.2% and 31.0%, respectively. Assume a correlation coefficient of 1.0 and calculate the portfolio variance. 19

Portfolio Risk Example Suppose you invest 60% of your portfolio in JNJ and 40% in Ford. The expected dollar return on your JNJ is 8.0% and on Ford is 18.8%. The standard deviation of their annualized daily returns are 13.2% and 31.0%, respectively. Assume a correlation coefficient of 1.0 and calculate the portfolio variance. 19

Portfolio Risk Example Suppose you invest 60% of your portfolio in JNJ and 40% in Ford. The expected dollar return on your JNJ is 8.0% and on Ford is 18.8%. The standard deviation of their annualized daily returns are 13.2% and 31.0%, respectively. Assume a correlation coefficient of .019 and calculate the portfolio variance. 19

Portfolio Risk Another Example Suppose you invest 60% of your portfolio in JNJ and 40% in Ford. The expected dollar return on your JNJ is 8.0% and on Ford is 18.8%. The standard deviation of their annualized daily returns are 13.2% and 31.0%, respectively. Assume a correlation coefficient of -1.00 and calculate the portfolio variance. 19

Portfolio Risk Example Correlation Coefficient = .4 Stocks s % of Portfolio Avg Return ABC Corp 28 60% 15% Big Corp 42 40% 21% Standard deviation = weighted avg = 33.6 Standard deviation = Portfolio = 28.1 Real standard deviation: = (282)(.62) + (422)(.42) + 2(.4)(.6)(28)(42)(.4) = 28.1 CORRECT Return : r = (15%)(.60) + (21%)(.4) = 17.4%