投资公司英文提案CHT06.pptVIP

Chapter6 RiskandRisk Aversion Risk - Uncertain Outcomes Risky Investments with Risk-Free Investment Risk Aversion Utility Investor’s view of risk Risk Averse Risk Neutral Risk Seeking Utility Utility Function U = E ( r ) - .005 A s 2 A measures the degree of risk aversion Risk Aversion and Value: Using the Sample Investment U = E ( r ) - .005 A s 2 = .22 - .005 A (34%) 2 Risk Aversion A Value High 5 -6.90 3 4.66 Low 1 16.22 Dominance Principle Utility and Indifference Curves Represent an investor’s willingness to trade-off return and risk Example Exp Ret St Deviation U=E ( r ) - .005As2 10 20.0 2 15 25.5 2 20 30.0 2 25 33.9 2 Indifference Curves Expected Return Rule 1 : The return for an asset is the probability weighted average return in all scenarios. Variance of Return Rule 2: The variance of an asset’s return is the expected value of the squared deviations from the expected return. Return on a Portfolio Rule 3: The rate of return on a portfolio is a weighted average of the rates of return of each asset comprising the portfolio, with the portfolio proportions as weights. rp = W1r1 + W2r2 W1 = Proportion of funds in Security 1 W2 = Proportion of funds in Security 2 r1 = Expected return on Security 1 r2 = Expected return on Security 2 Portfolio Risk with Risk-Free Asset Rule 4: When a risky asset is combined with a risk-free asset, the portfolio standard deviation equals the risky asset’s standard deviation multiplied by the portfolio proportion invested in the risky asset. Portfolio Risk Rule 5: When two risky assets with variances s12 and s22, respectively, are combined into a portfolio with portfolio weights w1 and w2, respectively, the portfolio variance is given by ?p2 = w12?12 + w22?22 + 2W1W2 Cov(r1r2) Cov(r1r2) = Covariance of returns for Security 1 and Security 2 ? The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane