财务管理风险和回报率chapter5.pptVIP

CHAPTER 5Risk and Rates of Return Stand-alone risk Portfolio risk Risk return: CAPM / SML Investment returns The rate of return on an investment can be calculated as follows: (Amount received – Amount invested) Return = ________________________ Amount invested For example, if $1,000 is invested and $1,100 is returned after one year, the rate of return for this investment is: ($1,100 - $1,000) / $1,000 = 10%. What is investment risk? Two types of investment risk Stand-alone risk Portfolio risk Investment risk is related to the probability of earning a low or negative actual return. The greater the chance of lower than expected or negative returns, the riskier the investment. Probability distributions A listing of all possible outcomes, and the probability of each occurrence. Can be shown graphically. Investment alternatives Return: Calculating the expected return for each alternative Summary of expected returns for all alternatives Exp return HT 17.4% Market 15.0% USR 13.8% T-bill 8.0% Coll. 1.7% HT has the highest expected return, and appears to be the best investment alternative, but is it really? Have we failed to account for risk? Why is the T-bill return independent of the economy? Do T-bills promise a completely risk-free return? How do the returns of HT and Coll. behave in relation to the market? HT – Moves with the economy, and has a positive correlation. This is typical. Coll. – Is countercyclical with the economy, and has a negative correlation. This is unusual. Risk: Calculating the standard deviation for each alternative Standard deviation calculation Comparing standard deviations Comments on standard deviation as a measure of risk Standard deviation (σi) measures total, or stand-alone, risk. The larger σi is, the lower the probability that actual returns will be closer to expected returns. Larger σi is associated with a wider probability distribution o