TAILIEUCHUNG - Lecture Introduction to finance: Markets, investments, and financial management (14th edition): Chapter 12 - Melicher, Norton

Chapter 12 - Financial return and risk concepts. This chapter includes contents: Know how to compute arithmetic averages, variances, and standard deviations using return data for a single financial asset; understand the sources of risk; know how to compute expected return and expected variance using scenario analysis;. | Chapter 12 Financial Return and Risk Concepts © 2011 John Wiley and Sons Know how to compute arithmetic averages, variances, and standard deviations using return data for a single financial asset. Understand the sources of risk Know how to compute expected return and expected variance using scenario analysis. Know the historical rates of return and risk for different securities. Chapter Outcomes Understand the concept of market efficiency and explain the three types of efficient markets. Explain how to calculate the expected return on a portfolio of securities. Understand how and why the combining of securities into portfolios reduces the overall or portfolio risk. Explain the difference between systematic and unsystematic risk. Understand the importance of ethics in investment-related positions. Chapter Outcomes Historical Return and Risk for a Single Asset Return: periodic income and price changes Dollar return = ending price – beginning price + income Historical Return and Risk for a Single Asset Percentage return = Dollar return/beginning price Beginning price = $ Ending price = $ Dividend = $ Dollar return = $ =$ Percentage return = $$ = or percent Historical Return and Risk for a Single Asset Can be daily, monthly or annual returns Risk: based on deviations over time around the average return Returns for Two Stocks Over Time Arithmetic Average Return Look backward to see how well we’ve done: Average Return (AR) = Sum of returns number of periods An Example YEAR STOCK A STOCK B 1 6% 20% 2 12 30 3 8 10 4 –2 –10 5 18 50 6 6 20 Sum 48 120 Sum/6 = AR= 8% 20% Measuring Risk Deviation = Rt - AR Sum of Deviations (Rt - AR) = 0 To measure risk, we need something else try squaring the deviations Variance 2 = (Rt - AR)2 n - 1 Since the returns are squared: (Rt - AR)2 The units are squared, too: Percent squared (%2) Dollars squared ($ 2) Hard to interpret! .

• Tài chính doanh nghiệp
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• Lecture Introduction to finance
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