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2. Using Boundless Presentations The Appendix The appendix is for you to use to add depth and breadth to your lectures. You can simply drag and drop slides from the appendix into the main presentation to make for a richer lecture experience. Free to edit, share, and copy Feel free to edit, share, and make as many copies of the Boundless presentations as you like. We encourage you to take these presentations and make them your own. Free to share, print, make copies and changes. Get yours at www.boundless.com Boundless Teaching Platform Boundless empowers educators to engage their students with affordable, customizable textbooks and intuitive teaching tools. The free Boundless Teaching Platform gives educators the ability to customize textbooks in more than 20 subjects that align to hundreds of popular titles. Get started by using high quality Boundless books, or make switching to our platform easier by building from Boundless content pre-organized to match the assigned textbook. This platform gives educators the tools they need to assign readings and assessments, monitor student activity, and lead their classes with pre-made teaching resources. Get started now at: If you have any questions or problems please email: educators@boundless.com http://boundless.com/teaching-platform

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4. Calculating Expected Portfolio Returns Portfolio Risk Beta Coefficient for Portfolios Implications Across Portfolios Introduction to Risk and Return > Implications Across Portfolios Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_80&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=dir ect&utm_source=boundless

5. To calculate the expected return of a portfolio, you need to know the expected return and weight of each asset in a portfolio. The figure is found by multiplying each asset's weight with its expected return, and then adding up all those figures at the end. These estimates are based on the assumption that what we have seen in the past is what we can expect in the future, and ignores a structural view on the market. Calculating Expected Portfolio Returns Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/calculating- expected-portfolio-returns-349- 3894?campaign_content=book_192_section_80&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess A Fruitful Portfolio View on Boundless.com Introduction to Risk and Return > Implications Across Portfolios

6. Portfolios that are efficient investments are those that effectively diversify the underlying risk away and price their investment efficiently. Portfolio risk takes into account the risk and weight of each individual position and also the co-variances across different positions. To calculate the risk of a portfolio, you need each asset's variance along with a matrix of cross-asset correlations. Portfolio Risk Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/portfolio-risk- 350- 3893?campaign_content=book_192_section_80&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Variance of any portfolio View on Boundless.com Introduction to Risk and Return > Implications Across Portfolios

7. In individual stocks, a beta coefficient compares how much a particular stock fluctuates in value on a day-to-day basis. A beta coefficient for a portfolio of assets measures how that portfolio value changes compared to a benchmark, like the S&P 500. A value of 1 suggests that it fluctuates as much as the index and in the same direction. A beta coefficient of less than 1 suggests a portfolio that fluctuates less than the benchmark. A negative beta is an indication that a portfolio moves in the opposite direction of its benchmark. Beta Coefficient for Portfolios Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/beta- coefficient-for-portfolios-351- 3892?campaign_content=book_192_section_80&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Calculating Beta View on Boundless.com Introduction to Risk and Return > Implications Across Portfolios

8. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

9. Key terms Co-Variance In probability theory and statistics, co-variance is a measure of how much two random variables change together. Normalized variable In statistics, a normalized variable is one that is calculated using a ratio of itself and some benchmark figure. Normalized figures tend to be smaller than the original values. portfolio The group of investments and other assets held by an investor. risk The potential (conventionally negative) impact of an event, determined by combining the likelihood of the event occurring with the impact, should it occur. weighted average In statistics, a weighted average is an average that takes each object and calculates the product of its weight and its figure and sums all of these products to produce one average. It is implied that all the individual weights add to 1. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return

10. Variance of any portfolio The formula shows that the overall variance in a portfolio is the sum of each individual variance along with the cross-asset correlations. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikipedia. "Modern portfolio theory." CC BY http://en.wikipedia.org/wiki/Modern_portfolio_theory#Risk_and_expected_return View on Boundless.comCC BYhttp://en.wikipedia.org/wiki/Modern_portfolio_theory#Risk_and_expected_returnView on Boundless.com Introduction to Risk and Return

11. A Fruitful Portfolio How would you calculate the expected return on this portfolio? Free to share, print, make copies and changes. Get yours at www.boundless.com Amazon Web Services. "Boundless." CC BY http://s3.amazonaws.com/figures.boundless.com/508a73c2e4b045275e7845ee/expected+return.png View on Boundless.comCC BYhttp://s3.amazonaws.com/figures.boundless.com/508a73c2e4b045275e7845ee/expected+return.pngView on Boundless.com Introduction to Risk and Return

12. Calculating Beta Two hypothetical portfolios; what do you think each Beta value is? Free to share, print, make copies and changes. Get yours at www.boundless.com Amazon Web Services. "Boundless." CC BY http://s3.amazonaws.com/figures.boundless.com/508c7229e4b0e81b6cfe4ea6/betacoefficientt.png View on Boundless.comCC BYhttp://s3.amazonaws.com/figures.boundless.com/508c7229e4b0e81b6cfe4ea6/betacoefficientt.pngView on Boundless.com Introduction to Risk and Return

13. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio? A) 7.3% B) 7.5% C) 7% D) 8.1%

14. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Risk and Return A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio? A) 7.3% B) 7.5% C) 7% D) 8.1%

15. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return A portfolio is composed of 80% stock and 20% bonds. The variance of stock is 170 and the variance of bonds is 140. The covariance is 30. What is the portfolio's variance? A) 114 B) 101 C) 119 D) 168

16. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Risk and Return A portfolio is composed of 80% stock and 20% bonds. The variance of stock is 170 and the variance of bonds is 140. The covariance is 30. What is the portfolio's variance? A) 114 B) 101 C) 119 D) 168

17. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return Over a period of three days, a company stock increased by 4%, decreased by _______%, then increased by 6%. During that same period, the Dow Jones increased by _______%, decreased by 1%, and then increased by 3%. What is the company's beta? A) 2 B) -2 C) 0.5 D) -0.5

18. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Introduction to Risk and Return Over a period of three days, a company stock increased by 4%, decreased by _______%, then increased by 6%. During that same period, the Dow Jones increased by _______%, decreased by 1%, and then increased by 3%. What is the company's beta? A) 2 B) -2 C) 0.5 D) -0.5

19. Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return Under the capital asset pricing model (CAPM), what beta value is considered risky? A) A beta above 1 B) A beta equal to 0 C) A beta between 0 and 1 D) None of these

20. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Saylor OER. "Business Administration « Saylor.org – Free Online Courses Built by Professors." CC BY 3.0 http://www.saylor.org/majors/Business/CC BY 3.0 http://www.saylor.org/majors/Business/ Introduction to Risk and Return Under the capital asset pricing model (CAPM), what beta value is considered risky? A) A beta above 1 B) A beta equal to 0 C) A beta between 0 and 1 D) None of these

21. Attribution Wikipedia. "Beta (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Beta_(finance)CC BY-SA 3.0http://en.wikipedia.org/wiki/Beta_(finance) Wikipedia. "Normalized variable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Normalized%20variableCC BY-SA 3.0http://en.wikipedia.org/wiki/Normalized%20variable Wikipedia. "Modern portfolio theory." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modern_portfolio_theoryCC BY-SA 3.0http://en.wikipedia.org/wiki/Modern_portfolio_theory Wiktionary. "portfolio." CC BY-SA 3.0 http://en.wiktionary.org/wiki/portfolioCC BY-SA 3.0http://en.wiktionary.org/wiki/portfolio Wiktionary. "risk." CC BY-SA 3.0 http://en.wiktionary.org/wiki/riskCC BY-SA 3.0http://en.wiktionary.org/wiki/risk Wikipedia. "Co-Variance." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Co-VarianceCC BY-SA 3.0http://en.wikipedia.org/wiki/Co-Variance Wikipedia. "Modern portfolio theory." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modern_portfolio_theoryCC BY-SA 3.0http://en.wikipedia.org/wiki/Modern_portfolio_theory Wikipedia. "Expected return." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Expected_returnCC BY-SA 3.0http://en.wikipedia.org/wiki/Expected_return Wiktionary. "weighted average." CC BY-SA 3.0 http://en.wiktionary.org/wiki/weighted+averageCC BY-SA 3.0http://en.wiktionary.org/wiki/weighted+average Free to share, print, make copies and changes. Get yours at www.boundless.com Introduction to Risk and Return