【投资学英文版课件】UNDERSTANDINGRISKANDRETURN.ppt

UNDERSTANDINGRISK AND RETURN Introduction A dollar today is worth more than a dollar tomorrow. A safe dollar is worth more than a risky dollar. People have different degrees of risk aversion. Some are more willing to take a chance than others. A tradeoff exists between risk and return. Holding Period Return The simplest measure of return is the holding period return. Holding Period Return Holding Period Return Holding period return is independent of the passage of time. When comparing investments, the periods should all be of the same length. When there are stock splits or other corporate actions, care should be taken to ensure that the correct value is used for calculating the holding period return. Yield and Appreciation Yield and Appreciation The Time Value of Money The time value of money is the notion that a dollar today is worth more than a dollar tomorrow. The Time Value of Money The current price of any financial asset should be the present value of its expected future cash flows. The Time Value of Money Many securities pay more than one cash flow over their lives. In particular, an annuity is a series of equal and evenly spaced payments. A convenient expression for the present value of an annuity is: The Time Value of Money Compounding Compounding refers to the earning of interest on interest that is earned previously. Compounding The more frequent the compounding, the greater the interest earned. Risk vs. Uncertainty A truly risky situation must involve a chance of loss. Dispersion and the Chance of Loss There are 2 aspects to risk - the average outcome and the scattering of the possible outcomes about this average. A common measure of statistical dispersion is variance. The standard deviation is the square root of the variance. Dispersion and the Chance of Loss The Problem with Losses Big losses - a large one-period loss can overwhelm a series of gains Small losses - can be a problem too if they occur too often Risk and the time horizon - as the time hor