ch06risk and rates of return(财务管理,英文版).pptVIP

Stand-alone risk Portfolio risk Risk return: CAPM/SML What is investment risk? Investment Alternatives(Given in the problem) Why is the T-bill return independent of the economy? Do T-bills promise a completelyrisk-free return? Do the returns of HT and Coll. move with or counter to the economy? HT: Moves with the economy, and has a positive correlation. This is typical. Coll: Is countercyclical of the economy, and has a negative correlation. This is unusual. Calculate the expected rate of return on each alternative: What’s the standard deviationof returns for each alternative? Standard deviation (si) measures total, or stand-alone, risk. The larger the si , the lower the probability that actual returns will be close to the expected return. Expected Returns vs. Risk Coefficient of Variation (CV) Portfolio Risk and Return Portfolio Return, kp Alternative Method sp = 3.3% is much lower than that of either stock (20% and 13.4%). sp = 3.3% is lower than average of HT and Coll = 16.7%. \ Portfolio provides average k but lower risk. Reason: negative correlation. General statements about risk Most stocks are positively correlated. rk,m ? 0.65. s ? 35% for an average stock. Combining stocks generally lowers risk. Returns Distribution for Two Perfectly Negatively Correlated Stocks (r = -1.0) and for Portfolio WM Returns Distributions for Two Perfectly Positively Correlated Stocks (r = +1.0) and for Portfolio MM’ What would happen to theriskiness of an average 1-stockportfolio as more randomlyselected stocks were added? sp would decrease because the added stocks would not be perfectly correlated but kp would remain relatively constant. As more stocks are added, each new stock has a smaller risk-reducing impact. sp falls very slowly after about 10 stocks are included, and after 40 stocks, there is little, if any, effect. The lower limit for sp is about 20% = sM . Stand-alone Market Firm-specific By forming portfolios, we can eliminate about half the riski