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Seminar 04

Seminar 04

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Published by api-3695734
Seminar 04 Notes.
\
Risk and Returns.
Seminar 04 Notes.
\
Risk and Returns.

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Published by: api-3695734 on Oct 19, 2008
Copyright:Attribution Non-commercial

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03/18/2014

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BUSINESS FINANCE/
FINANCIAL MARKETS & INSTITUTIONS
[B Sc (Hons) in Management]
SEMINAR 4
Risk & Return
1. Risk vs Return Calculation
\u2022Historical (past)
\u2022Expectation (future)
2. Rate of Return
\u2022Return (%) = [(income) + (capital gain/loss)]
initial investment
\u2022Bonds vs Shares
\u2022The higher the risk, the higher the return required to
attract investors
\u2022Return of Single Asset vs Portfolio of Assets
State of
State of
economy
economy
Recession
Recession
Normal
Normal
Boom
Boom
Probability
Probability
P
P
0.20
0.20
0.50
0.50
0.30
0.30
Return
Return
A
B
A
B
4%
4%
8%
8%
14%
14%
-10%
-10%
18%
18%
30%
30%
Expected return R is just a weighted average
Expected return R is just a weighted average
E(r) = P(r
E(r) = P(r1
1)
)x
xr
r1
1 + P(r
+ P(r2
2)
)x
xr
r2
2 + \u2026 + P(r
+ \u2026 + P(rs
s)
)x
xr
rs
s
Example (Expected Return)

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