Chapter 06 - Analysis of Risk and Return 现代财务相关管理英文版课件.pptVIP

The Characteristic Line A regression line of periodic rates of return for security j and the Market Index Search for (stock beta) on this search engine: / * * 6 Analysis of Risk and Return ?2006 Thomson/South-Western Introduction This chapter develops the risk-return relationship for individual projects (investments) and a portfolio of projects. Risk and Return Risk refers to the potential variability of returns from a project or portfolio of projects. Returns are cash flows. Risk-free returns are known with certainty. U.S. Treasury Securities Check out interest rates on the following URLs /fred/data/irates.html / Expected Return A weighted average of the individual possible returns The set of all possible returns is referred to as the “distribution of returns” The symbol for expected return, r , is called “r hat.” r = Sum (all possible returns ? their probability) ^ ^ ^ Standard Deviation Standard Deviation is an absolute measure of risk. Z score measures the number of standard deviations a particular rate of return r is from the expected value of r. See table V page T5 and slide 6 Coefficient of variation v is a relative measure of risk. Risk is an increasing function of time. Coefficient of Variation The coefficient of variation is a relative measure of risk. The coefficient of variation is an appropriate measure of total risk when comparing two investment projects of different size. Risk-Return Relationship Required return = Risk-free return + Risk premium Check out the risk-free rate at this Web site: /markets/rates.html What Makes Up the Risk-Free Rate? The risk-free rate of return is the sum of two components: Real rate of return + expected inflation premium The inflation premium compensates investors for the loss of purchasing power due to inflation Sources of the Risk Premium Maturity risk premium Default risk premium Seniority risk premium Marketability risk premium Explaining the Ma