RISK AND RETURN IMP NOTES

● NEXT DIVIDEND = PROJECTED EPS*DIVIDEND PAYOUT RATIO.

● Systematic risk explains why stock values tend to move in the same
direction.

● The systematic risk of an individual security is measured by the

covariance between the security’s return and the general market.

● Co-efficient of variation = Standard deviation

Expected return

● An optimal portfolio of investment is tangential to the investor's highest

indifference curve.

● If a firm has a portfolio of six different stocks, the expected return for
the portfolio is the weighted average of the expected returns for the
six stocks.

● The amortization schedule details the amount of monthly payments

allocated to principal and interest, as well as the unpaid principal
balance.

● According to CAPM, the expected risk premium of a portfolio varies: in

direct proportion to beta in a competitive environment.

● With an amortized loan, a bigger proportion of each month’s payment

goes towards interest in the early periods.

● Having a fewer stocks in the portfolio representing different industries

is more likely to show low correlation and low portfolio return
variability.
● Relative valuation is a stock valuation method that uses multiples of
similar companies. It associates the stock price to the comparable
peer’s multiples and the projected earnings or book value of the
company under study for it to determine the stock price.