TAILIEUCHUNG - Lecture Fundamentals of finance – Chapter 11: Risk and return

After completing this unit, you should be able to: Know how to calculate expected returns, understand the impact of diversification, understand the systematic risk principle, understand the security market line, understand the risk-return trade-off. | Chapter 11 Lecture – Risk and Return Chapter 11 Lecture – Risk and Return Learning Objectives After studying this chapter, you should be able to: LO1 Calculate expected returns. LO2 Explain the impact of diversification. LO3 Define the systematic risk principle. LO4 Discuss the security market line and the risk-return trade-off. 11-1 11-2 What are Investment Returns? What is Investment Risk? Investment returns measure the financial results of an investment. Typically, investment returns are not known with certainty. Investment risk pertains to the probability of earning a return less than that expected. The greater the chance of a return far below the expected return, the greater the risk. Returns may be historical or prospective (anticipated). Returns can be expressed in: Dollar (or any other currency) terms. Percentage terms. What is the return on an investment that costs $1,000 and is sold after 1 year for $1,100? Risk-averse investors require higher rates of return to invest in higher-risk securities Dollar return:$ Received - $ Invested $1,100 - $1,000= $100. Percentage return:$ Return/$ Invested $100/$1,000 = = 10%. 3 4 11-3 1 11-4 Chapter 11 Lecture – Risk and Return Indifference Curves for Risk Adverse and RiskLoving Investors Expected Returns • Expected returns are based on the probabilities of possible outcomes E x p e c t e d n E ( R) pi Ri i 1 R e t u r n s Where: pi = the probability of state “i” occurring Ri = the expected return on an asset in state i Risk 11-5 11-6 Example: Expected Returns State (i) Recession Neutral Boom E(R) p(i) Probability distribution Stock X E(R) Stock A Stock B E(Ra) p(i) x E(Ra) E(Rb) p(i) x E(Rb) -20% 30% 15% 15% 35% -10% Stock Y n E ( R ) pi R i -20 i 1 0 15 50 Rate of return (%) Which stock is riskier? Why? 11-7 11-8 2 Chapter 11 Lecture – Risk and Return Variance and .

• Tài chính doanh nghiệp
• Financial management
• Portfolio risk
• Systematic risk
• Security market line
• Fundamentals of finance
• Fundamentals of finance
• Financial statement
• International trade transactions
• Fundamentals of financial management
• Financial statement analysis
• International financial management
• Quản lý tài chính
• Multinational financial management
• Exchange rates
• Financial environments
• Overview of Financial Management and the Financial Environment
• The financial environment
• Forms of business organization
• Determinants of stock pricing
• Financial instruments
• Practical financial management
• Financial background
• Financial statements
• Financial planning
• Financial system
• Financial ratio
• IT financial management
• Setting the scene
• IT financial management maturity
• Parameters influencing IT financial management
• Costs of IT financial management
• More quantifiable benefits
• Overview of roles
• Hospitality financial management
• Hospitality industry management
• Analysis of financial reports
• Analyzing financial statements
• Management decision making
• Foundations of financial management
• Review of accounting
• Financial analysis
• Financial forecasting
• The financing decision
• Financial leverage
• Current asset management
• Paper F7
• Revision kit 2016
• Management Financial
• Financial Management Exam Review
• Review of Financial Management
• Study text 2016
• Lecture Multinational financial management
• International financial reporting standards
• Foreign exchange risk management
• Financing decisions
• Investment decisions
• Role of management
• International cash management
• Cash flow analysis
• Centralized cash management
• Intermediate financial management
• Financial options
• Corporate valuation
• Corporate governance
• Financial markets
• Cash flow
• Analysis of financial statements
• Ratio analysis
• Interest rates
• Financial institutions
• Forecasting sales
• Business environment
• Limited liability company
• Common size analysis
• Statement analysis
• Break even analysis
• Break even point