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Risk and Rate of Returns in Financial Management

Risk and Rate of Returns in Financial Management

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Risk and Rate of Returns in Financial Management
Risk and Rate of Returns in Financial Management

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Categories:Types, Business/Law
Published by: Khawaja Naveed Haider on Mar 11, 2010
Copyright:Attribution Non-commercial

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07/12/2013

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5-1
Risk and Rates of Return
Stand-alone risk
Portfolio risk
Risk & return: CAPM / SML
 
5-2
Investment returns
 The rate of return on an investment can becalculated as follows:
(Amount received– Amount invested)
Return =
 
 _______________________
 
Amount invested
For example, if $1,000 is invested and $1,100 isreturned after one year, the rate of return for thisinvestment is:($1,100 - $1,000) / $1,000 = 10%.
 
5-3
What is investment risk?
 Two types of investment risk
Stand-alone risk
Portfolio risk
Investment risk is related to theprobability of earning a low or negativeactual return.
 The greater the chance of lower thanexpected or negative returns, theriskier the investment.

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