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

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Presentation transcript:

Risk and Return

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

Standard deviation How do you calculate this? – Five steps Measures risk – Fluctuations around the mean

Relationship between E(R) and σ Normal distribution +/-1σ and +/-2σ Risk aversion – How does this factor into investment choices?

Portfolio Analysis Graph – unsystematic versus systematic risk Expected return – Weighted average Standard deviation – Build new column on table – Then five steps

CAPM Capital Asset Pricing Model (CAPM) – Equation – How does this relate to the required return for a stock?

Comparing E(R) to R How do E(R) and R relate to each other? How can you use this relationship to make investment decisions?

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