Qdai for FENUL Finanças October 31. Qdai for FENUL Topics covered  Expected return  Variance, standard deviation  Covariance  Correlation  Portfolio:

Slides:

Advertisements

Similar presentations

Chapter 6 The Mathematics of Diversification

Advertisements

Chapter 6 Trade-Off Between Risk & Return

Question 1 (textbook p.312, Q2)

MIP/MB-IPB/08 1 MANAJEMEN INVESTASI DAN PORTOFOLIO Lecture 3b: Portfolio Management.

Risk and Rates of Return Besley: Chapter 5 Pages

Introduction The relationship between risk and return is fundamental to finance theory You can invest very safely in a bank or in Treasury bills. Why.

Quiz 4 solution sketches 11:00 Lecture, Version A Note for multiple-choice questions: Choose the closest answer.

Chapter 8 Risk and Return. Topics Covered  Markowitz Portfolio Theory  Risk and Return Relationship  Testing the CAPM  CAPM Alternatives.

Chapter 8 Principles PrinciplesofCorporateFinance Tenth Edition Portfolio Theory and the Capital Asset Pricing Model Slides by Matthew Will Copyright ©

F303 Intermediate Investments1 Inside the Optimal Risky Portfolio New Terms: –Co-variance –Correlation –Diversification Diversification – the process of.

The McGraw-Hill Companies, Inc., 2000

Contemporary Investments: Chapter 17 Chapter 17 RISK AND DIVERSIFICATION What is risk aversion, and why are investors, as a group, risk averse? What are.

Chapter 5 The Mathematics of Diversification

Risk-Return Problems 7. Calculating Returns and Deviations Based on the following information, calculate the expected return and standard deviation for.

Efficient Diversification

FINANCE 9. Optimal Portfolio Choice Professor André Farber Solvay Business School Université Libre de Bruxelles Fall 2007.

Today Risk and Return Reading Portfolio Theory

Chapter 8 Diversification and Portfolio Management  Diversification – Eliminating risk  When diversification works  Beta – Measure of Risk in a Portfolio.

Hanoi April Capital budgeting decisions with the Net Present Value rule 2. Cost of capital Professor André Farber Solvay Business School University.

Combining Individual Securities Into Portfolios (Chapter 4)

QDai for FEUNL Finanças November 2. QDai for FEUNL Topics covered  Minimum variance portfolio  Efficient frontier  Systematic risk vs. Unsystematic.

Corporate Finance Portfolio Theory Prof. André Farber SOLVAY BUSINESS SCHOOL UNIVERSITÉ LIBRE DE BRUXELLES.

SOME STATISTICAL CONCEPTS Chapter 3 Distributions of Data Probability Distribution –Expected Rate of Return –Variance of Returns –Standard Deviation –Covariance.

Optimal Risky Portfolios

1 Chapter 09 Characterizing Risk and Return McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Beta Prof. André Farber SOLVAY BUSINESS SCHOOL UNIVERSITÉ LIBRE DE BRUXELLES.

 Introduction to Risk, Return, and the Opportunity Cost of Capital Principles of Corporate Finance Brealey and Myers Sixth Edition Slides by Matthew Will.

REITs and Portfolio Diversification. Capital Asset Pricing Models (CAPM) A. Risk compensation 1. unique vs. systematic risk 2. idiosyncratic vs. nondiversifiable.

Measuring Returns Converting Dollar Returns to Percentage Returns

Intermediate Investments F3031 Summary to Date Investing is about measuring and understanding the risk/return relationship Risk –Measured through the use.

1 MBF 2263 Portfolio Management & Security Analysis Lecture 2 Risk and Return.

Expected Return for Individual Stocks

Diversification and Portfolio Risk Asset Allocation With Two Risky Assets 6-1.

Calculating Expected Return

Lecture 10 The Capital Asset Pricing Model Expectation, variance, standard error (deviation), covariance, and correlation of returns may be based on.

13-0 Expected Returns 13.1 Expected returns are based on the probabilities of possible outcomes In this context, “expected” means average if the process.

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Portfolio risk and return measurement Module 5.2.

Chapter 08 Risk and Rate of Return

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Corporate Finance Fifth Edition Ross Jaffe Westerfield Chapter 10 Return and Risk: The.

Risk and Return. Expected return How do you calculate this? – States of the economy table What does it mean?

Lecture 8 Risk and Return Managerial Finance FINA 6335 Ronald F. Singer.

1 Risk Learning Module. 2 Measures of Risk Risk reflects the chance that the actual return on an investment may be different than the expected return.

Chapter 13 Return, Risk, and the Security Market Line Copyright © 2012 by McGraw-Hill Education. All rights reserved.

Business Finance (MGT 232)

Real Estate Investments David M. Harrison, Ph.D. Texas Tech University  Expected Rate of Return -  Example: Risk & Return.

CHAPTER SEVEN Risk, Return, and Portfolio Theory J.D. Han.

Optimal portfolios and index model.  Suppose your portfolio has only 1 stock, how many sources of risk can affect your portfolio? ◦ Uncertainty at the.

Session 5 Standard Deviation of a Portfolio, Concept and Calculation

Capital Market Theory (Chap 9,10 of RWJ) 2003,10,16.

Chapter 11 Risk and Rates of Return. Defining and Measuring Risk Risk is the chance that an unexpected outcome will occur A probability distribution is.

Lecture 7 Introduction to Risk, Return, and the Opportunity Cost of Capital Managerial Finance FINA 6335 Ronald F. Singer.

1 CHAPTER 2 Risk and Return. 2 Topics in Chapter 2 Basic return measurement Types of Risk addressed in Ch 2: Stand-alone (total) risk Portfolio (market)

1 Stock Valuation Topic #3. 2 Context Financial Decision Making Debt Valuation Equity Valuation Derivatives Real Estate.

2 - 1 Copyright © 2002 by Harcourt College Publishers. All rights reserved. Chapter 2: Risk & Return Learning goals: 1. Meaning of risk 2. Why risk matters.

1 CHAPTER 6 Risk, Return, and the Capital Asset Pricing Model (CAPM)

FIGURE 12-1 Walgreens and Microsoft Stock Prices, 1996–2001 Melicher & Norton/Finance: Introduction to Institutions, Investments, and Management, 11th.

Summary of Previous Lecture In previous lecture, we revised chapter 4 about the “Valuation of the Long Term Securities” and covered the following topics.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

Chapter 7 Risk and Portfolio Theory. Expected Return E( r ) = E ( D ) +g P.

Expected Return and Variance

FIGURE 12.1 Walgreens and Microsoft Stock Prices,

Introduction to Risk and Return

Portfolio Risk Lecture 14.

5AC007 Business Finance Lecture Week 9

Portfolio Theory and Risk

Corporate Finance Ross  Westerfield  Jaffe

The McGraw-Hill Companies, Inc., 2000

Portfolio Theory and the Capital Asset Pricing Model

Introduction to Risk & Return

Presentation transcript:

Qdai for FENUL Finanças October 31

Qdai for FENUL Topics covered  Expected return  Variance, standard deviation  Covariance  Correlation  Portfolio: return and risk

Qdai for FENUL Previously  NPV: find appropriate discount rate  The discount rate is related to the risk level of the project  Measure the risk level with standard deviation.  This class: the relationship between risk and return.

Qdai for FENUL Individual securities  Expected return: The return that an individual expects a stock to earn over the next period.

Qdai for FENUL Individual securities  Variance and Standard Deviation: the volatility of a stock’s return  Covariance and Correlation: the interrelationship between two securities

Qdai for FENUL Expected return and Variance Superteck returns R AT Slowpoke Returns R BT Depression-20%5% Recession10%20% Normal30%-12% Boom50%9%

Qdai for FENUL Covariance and Correlation Superteck R AT Dev.Slowpoke R BT Dev.Product of deviations Depression -20%5% Recession 10%20% Normal 30%-12% Boom 50%9% Expected return Variance SD Covariance Correlation

Qdai for FENUL Portfolio: expected return  Expected return of a portfolio: the weighted average of the expected returns on the individual securities  Example. R A =17.5% R B =5.5% Expected return on portfolio =  If invest $60 in A and $40 in B, then Expected return on portfolio =

Qdai for FENUL Portfolio: variance  Variance of a portofolio Var(portfolio)=

Qdai for FENUL Portfolio: variance  The variance of a portofolio depends on  For given variances of securities, a positive relationship (covariance) the variance of the portfolio  A negative relationship (covariance) the portfolio variance.

Qdai for FENUL Portfolio: variance Example: X A =60%, X B =40%, = , = , Cov (A,B)=

Qdai for FENUL Portoflio: variance  The matrix approach AB A B

Qdai for FENUL Portfolio: Standard Deviation  Standard deviation of a portfolio = SD(portfolio)  In the previous example, var(portfolio)=  SD(portfolio) =

Qdai for FENUL Portfolio: diversification effect Superteck R A Slowpoke R B Portfolio with 60% in R A and 40% in R B Expected return 17.5%5.5%12.7% SD