 # Based on annual returns from 1926-2004

Yüklə 462 b.
 tarix 25.06.2018 ölçüsü 462 b. #51656 • ## U.S. T-Bills 3.8% 3.1% • ## Portfolio Return and Risk • ## Stand Alone Risk: Single Asset • ## Portfolio Context: A group of assets. Total risk consists of:

• Diversifiable Risk (company-specific, unsystematic)
• Market Risk (non-diversifiable, systematic)
• ## Small group of assets with Diversifiable Risk remaining: interested in portfolio standard deviation.

• correlation ( or r) between asset returns which affects portfolio standard deviation • ## The relevant risk measure is Beta which measures the riskiness of an individual asset in relation to the market portfolio. • ## CGY = 4/50 = 8%, DY = 3/50 = 6% • ## i=1 • ## Sample Variance = s2 = 1/(n-1) (ri – rAVG )2   • ## CV is a measure of relative risk, where standard deviation measures absolute risk. • ## CV = 1.015 • ## E(rp) = wiE(ri) = .6(33.5%) + .4(7.5%) = 23.1% • ## All else constant: Lower r = less portfolio risk • ## E(Rp) = 23.1%  • ## This remaining risk is called Market Risk and is measured by Beta. • ## Sources for stock betas: ValueLine Investment Survey (at BEL), Yahoo Finance, MSN Money, Standard & Poors • ## A stock’s risk premium = measure of market risk X market risk premium. • ## = rRF + (RPM)bi • ## What is Intel’s required return if its B = 1.2 (from ValueLine Investment Survey), the current 3-mo. T-bill rate is 5%, and the historical US market risk premium of 8.6% is expected? • ## Example: What is the portfolio beta for a portfolio consisting of 25% Home Depot with b = 1.0, 40% Hewlett-Packard with b = 1.35, and 35% Disney with b = 1.25. What is this portfolio’s required (expected) return if the risk-free rate is 5% and the market expected return is 14%? • ## Recall that rRF = 5% and rM = 14%  • ## Market risk premium = 14% - 5% = 9%  • ## Check out the following graphs with our base SML = 5% + (14%-5%)b   • ## Remember the stock’s returns is the y range, and the market’s returns is the x range. Yüklə 462 b.

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