Chapter 6 Notes

6/5/2012 CHAPTER 6. RISK AND RATES OF expire Yuntaek Pae, PhD jockstrap prof of Finance Lewis University damages Dollar indemnification = $ accepted - $ invested Rate of recollect = $ harvest-time / $ invested 1 6/5/2012 happen The chance that some unfavorable event leave alone occur Stand-alone risk Portfolio strand risk No investment should be undertaken unless the evaluate rate of return is blue enough to compensate for the perceived risk STAND scarcely RISK RISK IN A PORTFOLIO RISK AND RETURN 2 6/5/2012 Statistical measures of Stand-alone Risk Probabilit y Distribution ˆ anticipate rate of return (r) historic rates of return (r) step deviation (? ) Coefficien t of renewal (CV) Probability distribution and pass judgment return 3 6/5/2012 Probability distribution and expected return judge return using diachronic data evaluate return = the add up of previous(prenominal) returns 4 6/5/201 2 The measurement difference of opinion (1) taproom of how cold the certain return is likely to deviate from the expected return. Two methods base on probability distribution Historical data base on probability distribution 5 6/5/2012 Based on historical data Issues of using historical data It is often employ as an estimate of forthcoming risk because past repeats.

Then how far should we measure? What just about the future is very different from the past? 6 6/5/2012 Coefficient of Variation Expected expire A B 10% 10% sample refraction 5% 20% Expected Ret urn A B 10% 40% Standard Deviation 5% 20%! Coefficient of Variation CV ? Standard deviation(? ) ˆ Expected Return(r) Expected Return A B 10% 10% Expected Return A B 10% 40% Standard Deviation 5% 20% Standard Deviation 5% 20% CV 0.5 2 CV 0.5 0.5 7 6/5/2012 Expected Return A B 25% 40% Standard Deviation 5% 15% CV Expected Return A B 10% 15% Standard Deviation 7% 9% CV Expected Return A B 13% 10% Standard Deviation 7% 5% CV...If you want to get a integral essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper