Chapter 7
McGraw Hill/Irwin
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
Introduction to Risk, Return, and the Opportunity Cost of Capital
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Introduction to Risk, Return, and the Opportunity Cost of Capital презентация
Содержание
- 1. Introduction to Risk, Return, and the Opportunity Cost of Capital
- 2. Topics Covered 75 Years of Capital Market
- 3. The Value of an Investment
- 4. Source: Ibbotson Associates Index Year
- 5. Rates of Return 1926-2000 Source: Ibbotson Associates Year Percentage Return
- 6. Average Market Risk Premia (1999-2000) Risk premium, % Country
- 7. Measuring Risk Variance - Average value of
- 8. Measuring Risk Coin Toss Game-calculating variance and standard deviation
- 9. Measuring Risk Return % # of Years Histogram of Annual Stock Market Returns
- 10. Measuring Risk Diversification - Strategy
- 11. Measuring Risk
- 12. Measuring Risk
- 13. Measuring Risk
- 14. Portfolio Risk The variance of
- 15. Portfolio Risk Example Suppose
- 16. Portfolio Risk Example Suppose
- 17. Portfolio Risk Example Suppose
- 18. Portfolio Risk
- 19. Portfolio Risk The shaded boxes contain variance
- 20. Beta and Unique Risk 1. Total risk
- 21. Beta and Unique Risk Market Portfolio -
- 22. Beta and Unique Risk
- 23. Beta and Unique Risk Covariance with the market Variance of the market
Topics Covered 75 Years of Capital Market History Measuring Risk Portfolio Risk Beta and Unique Risk Diversification
Слайд 1
Principles of Corporate Finance
Seventh Edition
Richard A. Brealey
Stewart C. Myers
Slides by
Matthew
Will
Слайд 2Topics Covered
75 Years of Capital Market History
Measuring Risk
Portfolio Risk
Beta and Unique
Risk
Diversification
Diversification
Слайд 3
The Value of an Investment of $1 in 1926
Source: Ibbotson Associates
Index
Year
End
1
6402
2587
64.1
48.9
16.6
Слайд 4
Source: Ibbotson Associates
Index
Year End
1
660
267
6.6
5.0
1.7
Real returns
The Value of an Investment of $1
in 1926
Слайд 7Measuring Risk
Variance - Average value of squared deviations from mean. A
measure of volatility.
Standard Deviation - Average value of squared deviations from mean. A measure of volatility.
Standard Deviation - Average value of squared deviations from mean. A measure of volatility.
Слайд 10
Measuring Risk
Diversification - Strategy designed to reduce risk by spreading the
portfolio across many investments.
Unique Risk - Risk factors affecting only that firm. Also called “diversifiable risk.”
Market Risk - Economy-wide sources of risk that affect the overall stock market. Also called “systematic risk.”
Unique Risk - Risk factors affecting only that firm. Also called “diversifiable risk.”
Market Risk - Economy-wide sources of risk that affect the overall stock market. Also called “systematic risk.”
Слайд 15
Portfolio Risk
Example
Suppose you invest 65% of your portfolio in Coca-Cola
and 35% in Reebok. The expected dollar return on your CC is 10% x 65% = 6.5% and on Reebok it is 20% x 35% = 7.0%. The expected return on your portfolio is 6.5 + 7.0 = 13.50%. Assume a correlation coefficient of 1.
Слайд 16
Portfolio Risk
Example
Suppose you invest 65% of your portfolio in Coca-Cola
and 35% in Reebok. The expected dollar return on your CC is 10% x 65% = 6.5% and on Reebok it is 20% x 35% = 7.0%. The expected return on your portfolio is 6.5 + 7.0 = 13.50%. Assume a correlation coefficient of 1.
Слайд 17
Portfolio Risk
Example
Suppose you invest 65% of your portfolio in Coca-Cola
and 35% in Reebok. The expected dollar return on your CC is 10% x 65% = 6.5% and on Reebok it is 20% x 35% = 7.0%. The expected return on your portfolio is 6.5 + 7.0 = 13.50%. Assume a correlation coefficient of 1.
Слайд 19Portfolio Risk
The shaded boxes contain variance terms; the remainder contain covariance
terms.
STOCK
STOCK
To calculate portfolio variance add up the boxes
Слайд 20Beta and Unique Risk
1. Total risk = diversifiable risk + market
risk
2. Market risk is measured by beta, the sensitivity to market changes
2. Market risk is measured by beta, the sensitivity to market changes
Слайд 21Beta and Unique Risk
Market Portfolio - Portfolio of all assets in
the economy. In practice a broad stock market index, such as the S&P Composite, is used to represent the market.
Beta - Sensitivity of a stock’s return to the return on the market portfolio.
Beta - Sensitivity of a stock’s return to the return on the market portfolio.
