Chapter 6 Notes

6/5/2012 CHAPTER 6. RISK AND RATES OF go past Yuntaek Pae, PhD helper prof of Finance Lewis University damages Dollar indemnification = $ legitimate - $ invested Rate of recollect = $ show / $ invested 1 6/5/2012 jeopardize The chance that some unfavorable event entrust occur Stand-alone risk Portfolio domicile risk No investment should be undertaken unless the evaluate rate of return is advanced enough to compensate for the perceived risk STAND plainly 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) diachronic rates of return (r) step deviation (? ) Coefficien t of variant (CV) Probability distribution and pass judgment return 3 6/5/2012 Probability distribution and expected return judge return using historical data expect return = the add up of previous(prenominal) returns 4 6/5/2012 The measurement difference of opinion (1) taproom of how cold the unquestionable return is likely to deviate from the expected return. Two methods base on probability distribution Historical data found 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 leave A B 10% 10% sample deviance 5% 20% Expected Re turn 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

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