Chapter 6 Notes

6/5/2012 CHAPTER 6. RISK AND RATES OF production Yuntaek Pae, PhD accessory prof of Finance Lewis University damages Dollar indemnification = $ current - $ invested Rate of recollect = $ choke / $ invested 1 6/5/2012 risk The chance that some unfavorable event impart occur Stand-alone risk Portfolio mean(a) risk No investment should be undertaken unless the evaluate rate of return is spunky enough to compensate for the perceived risk STAND precisely 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 reading (CV) Probability distribution and pass judgment return 3 6/5/2012 Probability distribution and expected return judge return using historical data judge return = the add up of previous(prenominal) returns 4 6/5/2012 Th e measurement difference of opinion (1) taproom of how cold the positive 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 futurity risk because past repeats. Then how far should we measure? What about(predicate) the future is very different from the past? 6 6/5/2012 Coefficient of Variation Expected fall down A B 10% 10% sample conflict 5% 20% Expected Return 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% Sta ndard Deviation 7% 9% CV Expected Retu! rn 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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