tailieunhanh - Lecture Contemporary financial management (9th Edition): Chapter 5 - Moyer, McGuigan, Kretlow

Lecture Contemporary financial management (9th Edition) - Chapter 5: Analysis of risk and return. This chapter develops the risk-return relationship for individual projects (investments) and a portfolio of projects. | 5 Analysis of Risk and Return Introduction This chapter develops the risk-return relationship for individual projects (investments) and a portfolio of projects. Risk and Return Risk refers to the potential variability of returns from a project or portfolio of projects. Returns are generated from cash flows. Risk-free returns are known with certainty. . Treasury Securities Check out interest rates on the following URLs Expected Return Expected return is a weighted average of the individual possible returns. The symbol for expected return, r, is called “r hat.” r = Sum (all possible returns their probability) ^ ^ Let’s Analyze Risk Standard Deviation is an absolute measure of risk. See Tables , , and and Figure . Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Coefficient of variation v is a relative measure of risk. Risk is an increasing function of time. See Figure . Calculating the Z Score Z score measures the number of standard deviations a particular rate of return r is from the expected value of r. See Figure . Z score = Target score – Expected value Standard deviation ^ Calculating the Z Score What’s the probability of a loss (., a negative return) on an investment with an expected return of 20 percent and a standard deviation of 17 percent? (0% – 20%)/17% = – rounded From table V = or percent probability of a loss Coefficient of Variation The coefficient of variation is an appropriate measure of total risk when comparing two investment projects of different size. Coefficient of Variation Consider two assets, T and S. Asset T has expected annual returns of 25% and a standard deviation of 20%, whereas Asset S has expected annual returns of 10% and a standard deviation of 18%. Although Asset T has a higher standard deviation than Asset S, intuition tells us that Asset T is less risky, because its . | 5 Analysis of Risk and Return Introduction This chapter develops the risk-return relationship for individual projects (investments) and a portfolio of projects. Risk and Return Risk refers to the potential variability of returns from a project or portfolio of projects. Returns are generated from cash flows. Risk-free returns are known with certainty. . Treasury Securities Check out interest rates on the following URLs Expected Return Expected return is a weighted average of the individual possible returns. The symbol for expected return, r, is called “r hat.” r = Sum (all possible returns their probability) ^ ^ Let’s Analyze Risk Standard Deviation is an absolute measure of risk. See Tables , , and and Figure . Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Let’s Analyze Risk Coefficient of variation v is a relative measure of risk. Risk is an increasing function of .