Portfolio Management Grenoble Ecole de Management MSc Finance 2011.

Slides:

Advertisements

Similar presentations

Question 1 (textbook p.312, Q2)

Advertisements

Berlin, Fußzeile1 The Trade-off Between Risk and Return Professor Dr. Rainer Stachuletz International Markets and Corporate Finance Berlin School.

Portfolio Management Grenoble Ecole de Management MSc Finance Fall 2009.

The McGraw-Hill Companies, Inc., 2000

FINANCE 8. Capital Markets and The Pricing of Risk Professor André Farber Solvay Business School Université Libre de Bruxelles Fall 2007.

Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter.

Risk and Rates of Return

Contemporary Investments: Chapter 2 Chapter 2 FUNDAMENTALS OF RISK AND RETURN What are the sources of investment returns? How are investment returns measured?

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

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

AN INTRODUCTION TO PORTFOLIO MANAGEMENT

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

Chapter 5 Risk and Rates of Return © 2005 Thomson/South-Western.

Defining and Measuring Risk

Chapter 6 An Introduction to Portfolio Management.

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

Introduction to Risk, Return, and The Opportunity Cost of Capital

1 Limits to Diversification Assume w i =1/N,  i 2 =  2 and  ij = C  p 2 =N(1/N) 2  2 + (1/N) 2 C(N 2 - N)  p 2 =(1/N)  2 + C - (1/N)C as N  

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

AN INTRODUCTION TO PORTFOLIO MANAGEMENT

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

This module identifies the general determinants of common share prices. It begins by describing the relationships between the current price of a security,

Capital budgeting and the capital asset pricing model “Less is more.” – Mies can der Rohe, Architect.

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

Risk, Return, and Security Market Line

© 2009 Cengage Learning/South-Western The Trade-off Between Risk and Return Chapter 6.

1 Chapter 2: Risk & Return Topics Basic risk & return concepts Stand-alone risk Portfolio (market) risk Relationship between risk and return.

Version 1.2 Copyright © 2000 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to:

Portfolio Management-Learning Objective

Lecture Presentation Software to accompany Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown Chapter 7.

Chapter 10: Risk and return: lessons from market history

Risks and Rates of Return

Requests for permission to make copies of any part of the work should be mailed to: Thomson/South-Western 5191 Natorp Blvd. Mason, OH Chapter 11.

Chapter 4 Risk and Rates of Return © 2005 Thomson/South-Western.

Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 5 Risk and Return.

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

Chapter 10 Capital Markets and the Pricing of Risk.

Lecture 1- Part 2 Risk Management and Derivative by Stulz, Ch:2 Expected Return and Volatility.

Portfolio Management Grenoble Ecole de Management MSc Finance 2011 Exercises chapter 3.

Derivation of the Beta Risk Factor

Investment Analysis and Portfolio Management First Canadian Edition By Reilly, Brown, Hedges, Chang 6.

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

J. K. Dietrich - GSBA 548 – MBA.PM Spring 2007 Measure of Risk and Risk- Adjusted Returns April 16, 2007 (LA) or April 10, 2007 (OCC)

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

Slide 1 W. Suo. Slide 2 W. Suo The Investor’s Goal  Goal is to maximize what is earned relative to the amount put into an investment Maximize either.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.

1 Investors are concerned with two principal properties inherent in securities: The return that can be expected from holding a security. The risk i.e.

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 4 Risk and Portfolio.

Risk /Return Return = r = Discount rate = Cost of Capital (COC)

Introduction to risk and return

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.

Return and Risk: The Asset-Pricing Model: CAPM and APT.

RISK AND REAL ESTATE INVESTMENT LEARNING OBJECTIVES Calculate and interpret the basic measures of risk for individual assets and portfolios of assets.

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)

3- 1 Outline 3: Risk, Return, and Cost of Capital 3.1 Rates of Return 3.2 Measuring Risk 3.3 Risk & Diversification 3.4 Measuring Market Risk 3.5 Portfolio.

Risk and Return: An Overview of Capital Market Theory

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

Risk and Return Professor XXXXX Course Name / Number.

Diversification, risk, return and the market portfolio.

What is risk?. Risk Risk implies the extend to which any chosen action or an inaction that may lead to a loss or some unwanted outcome.

FIGURE 12.1 Walgreens and Microsoft Stock Prices,

Introduction to Risk and Return

Return and Risk: The Capital Asset Pricing Models: CAPM and APT

Date 3M Close ($) S&P Close HPR 3M S&P HPR 4-Feb ,310.87

Corporate Finance Ross  Westerfield  Jaffe

The McGraw-Hill Companies, Inc., 2000

Chapter 3 Statistical Concepts.

Introduction to Risk & Return

Presentation transcript:

Portfolio Management Grenoble Ecole de Management MSc Finance 2011

Rate of return: examples Example 1: rate of return An initial investment is made of EUR 100. One period later the value of the investment has risen to EUR 125. The rate of return of this investment is: 2 Example 2: total rate of return An initial investment is made of EUR 100. One period later the value of the investment has risen to EUR 125. In the interim the investor has received an income of EUR 9. The total rate of return of this investment is:

Rate of return: examples Example 3: real rate of return An initial investment is made of EUR 100. One period later the value of the investment has risen to EUR 125. In the interim the investor has received an income of EUR 9 while prices have grown at a rate of 6%. The total real rate of return of this investment is: 3

Rate of return: examples Example 4: one-year real rate of return An initial investment is made of EUR 100. One period later (the period of investment is 3 years) the value of the investment has risen to EUR 125. In the interim the investor has received an income of EUR 9 while prices have grown at a rate of 6%. The one year total real rate of return of this investment is: 4 This return has been realized over 3 years or 36 months, the one-month total real rate of return of this investment is:

Rate of return: geometric mean Given several one-period rates of return, how to calculate the one-period mean return ? 5 Example 5: average rate of return A 3-year investment has registered the following one-year total returns: 5% in year 1, 8% in year 2 and 2% in year 3. The average total rate of return of this investment is:

Risk is not a vague concept Example 6:A 3-year investment has registered the following one-year total returns: 5% in year 1, 8% in year 2 and 2% in year 3. The variance and standard error are respectively: 6 The mean deviation from the mean is 3%. On average, the outcomes of this investment were distant by 3% of the mean. You can estimate the variability of any stock or bond returns by the procedure just described.

Diversification Portfolio Management

Covariance as a measure of diversification Example 7:A 3-year investment in company AA has registered the following one-year total returns: 5% in year 1, 8% in year 2 and 2% in year 3. A 3-year investment in company BB has registered the following one-year total returns: 3% in year 1, -1% in year 2 and 6% in year 3. What is the risk of a portfolio composed of 50% of AA stocks and 50% of BB stocks ? 8

Beta as a marginal risk 9 Example 8: A 3-year investment in company AA has registered the following one-year total returns: 5% in year 1, 8% in year 2 and 2% in year 3. A 3-year investment in company BB has registered the following one- year total returns: 3% in year 1, -1% in year 2 and 6% in year 3. What is the risk of a portfolio composed of 50% of AA stocks and 50% of BB stocks ? During the period, the market portfolio has registered the following returns: 4%, 5% and 3%. What is the Beta of the 50% AA / 50% BB stock to the market portfolio. What is the marginal contribution of stock AA to the 50%/50% portfolio ?