TAILIEUCHUNG - Lecture Fundamentals of corporate finance - Chapter 13: Return, risk, and the security market line

Chapter 13 explores the economic and managerial implications of this basic idea. After studying this chapter, you should understand: How to calculate expected returns, the impact of diversifi cation, the systematic risk principle, the security market line and the risk-return trade-off. | Chapter Outline Chapter 13 Return, Risk, and the Security Market Line Chapter Organization Expected Returns and Variances Portfolios Announcements, Surprises, and Expected Returns Risk: Systematic and Unsystematic Diversification and Portfolio Risk Systematic Risk and Beta The Security Market Line The SML and the Cost of Capital: A Preview Arbitrage Pricing Theory Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE Irwin/McGraw-Hill copyright © 2002 McGraw-Hill Ryerson, Ltd. Expected Return and Variance: Basic Ideas The quantification of risk and return is a crucial aspect of modern finance. It is not possible to make “good” (., value-maximizing) financial decisions unless one understands the relationship between risk and return. Rational investors like returns and dislike risk. Consider the following proxies for return and risk: Expected return - weighted average of the distribution of possible returns in the future. Variance of returns - a measure of the dispersion of the distribution of possible returns in the future. How do we calculate these measures? Stay tuned. Example: Calculating the Expected Return pi Ri Probability Return in State of Economy of state i state i +1% change in GNP .25 -5% +2% change in GNP .50 15% +3% change in GNP .25 35% Example: Calculating the Expected Return (concluded) i (pi Ri) i = 1 i = 2 i = 3 Expected return = ( + + ) = 15% Calculation of Expected Return (Table ) Stock L Stock U (3) (5) (2) Rate of Rate of (1) Probability Return (4) Return (6) State of of State of if State Product if State Product Economy Economy Occurs (2) (3) Occurs (2) (5) Recession .80 .30 .24 Boom .20 .70 .14 .10 .02 E(RL) = -2% E(RU) = 26% Example: Calculating the Variance pi ri Probability Return in State of Economy of state i state i +1% change in GNP .25 -5% +2% change in GNP .50 15% +3% change in .

• Tài chính doanh nghiệp
• Corporate finance
• Fundamentals of corporate finance
• Tài chính doanh nghiệp
• Business organization
• Financial management
• Security market line
• Intermediate corporate finance
• Lecture Intermediate corporate finance
• Corporate valuation
• Value based management
• International corporate finance
• Capital market history
• Raising capital
• Financial leverage
• Financial reporting
• Social welfare
• Forward contracts
• The stock markets
• Basic return concepts
• Portfolio theory
• Bond valuation
• Basic stock valuation
• Accounting for financial management
• Analysis of financial statements
• Financial planning
• Forecasting financial statements
• Capital budgeting
• Decision criteria
• Estimating cash flows
• Real options
• Capital structure decisions
• The levered firm
• Cash management
• Financial distress
• Hedging risk
• Warrants and convertibles
• Principles of corporate finance
• Understanding options
• Valuing options
• Financial analysis
• Financial manager
• Financial institutions