Risk & Return:

Expected Return of Asset: Ŕi=P1 ( R1 ) + P2 ( R2 ) + Pn ( Rn )=¿

Variance of Return of Asset: σ i2 =∑ ( Ri − Ŕi ¿)( P) ¿
SD of Return of Asset: σ i =∑ √( Ri −Ŕ i)( P)=¿

Variance of Portfolio: σ p2=¿

SD of Return of Asset: σ i =√ (W ¿¿ 1)2 ¿ ¿ ¿

P xy ( σ x )(σ y )
Systematic Risk for individual asset: β 1= 2
σm

Expected Return (CAPM): Ŕi=R f + ( R m−R f ) ( β 1) =¿

Systematic Risk for Portfolio: β p=(W ¿¿ 1) ( β 1 ) +(W ¿¿ 2) ( β 2 ) +(W ¿¿ N ) ( β N ) ¿¿ ¿

Expected Return (CAPM): Ŕi=R f + ( R m−R f ) ( β 1) =¿
Compare Returns:
Actual Return (provided ans) > Required Return (CAPM): Asset is Underpriced.
Investor BUY asset, demand force will force prices to rise

Actual Return (provided ans) < Required Return (CAPM): Asset is Overpriced.
Investor SELL asset, prices will be forced to fall

Actual Return (provided ans) = Required Return (CAPM): Asset is Farlypriced.

NPV:
Cost of Asset
Step 1: Depreciation=
n
$
- Depreciation of “= =
❑
Step 2: Gain/ Loss on Sale
- Book Value=Purchase Price+ Accumulated Depreciation=¿
- SalvageValue=¿
- Gain/ Loss on Sale=SalvageValue−Book Value=¿
Step 3: Profit & Loss Statement

Year 0 1 2 3
($) ($) ($) ($)

Revenue

Incremental Wages

Additional Labour

Rent Revenue Foregone

Variable Cost

Fixed Cost

Depreciation of

Gain/Loss on Sale

Profit/ Loss

Tax Item (30%)

Step 4: Cash-Flow Statement

Year 0 1  2 3
($) ($) ($) ($)

Tax Item (30%)

Revenue

Incremental Wages

Additional Labour
Rent Revenue Foregone

Variable Cost

Fixed Cost

Working Capital

Salvage Value

Net Cash-Flow

Step 5: Net Present Value

Year NCF ($) PVIF PV ($)

0 PV0 = NCF(1+r)-n

1 PV0 = NCF(1+r)-n
PV0 =

2 PV0 = NCF(1+r)-n
PV0 =

3 PV0 = NCF(1+r)-n
PV0 =

NPV