Return on Security

Investment
M. Aji Prasetyo
(195020501111005)
Rachel Millenia L. G.
(195020400111059)
 Table of Contents

01 02 03
Return
Components Expected Expected
and The Return for A Return from
Measurement Stock Portfolio
 Return
Components and
The Measurement
Return is the yield obtained
from the investment.
Return is the yield obtained
from the investment.

— Actual Return

— Expected Return
Realized Return Expected Return Required Return

Returns The return Return

that have expected obtained
occurred by historically,
 Return Components

Capital Gain/Loss Yield

Profits/loss Income or
es for cash flow
investors that the
 Return Total
From these
components, we
Capital
can compute: Gain (Loss)
Rate + Yield
of Return

𝐶𝑎𝑠h 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑+𝑃𝑟𝑖𝑐𝑒𝐶h𝑎𝑛𝑔𝑒𝑂𝑣𝑒𝑟𝑡h𝑒𝑃𝑒𝑟𝑖𝑜 𝑑
𝑃𝑢𝑟𝑐h𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒𝑜𝑓𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦
Application 1
Sales value of 10 000 11,000,000
Mr. Aji bought 10,000 shares @1100
Purchase value 10 10,000,000
shares of PT UVW @ 000 shares @1000
Capital Gain 1,000,000 10 %
Rp1,000. The shares Dividend Rp250 per 2,500,000 25 %
are owned for a year. shares (Yield)
Return Total 3,500,000 35 %
In that year, PT UVW
distributed dividends
of Rp. 250 per share.
After receiving the
 Application 2
Miss Wardha bought 5000 shares of PT
ABCD @ Rp1,500. The shares are owned
for a month. Furthermore, it is sold at a
price of Rp1,650 per share. From this
information, the rate of return can be
calculated as follows

 𝐶𝑎𝑠h 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑅𝑒𝑐𝑒𝑖𝑣𝑒𝑑+𝑃𝑟𝑖𝑐𝑒𝐶h𝑎𝑛𝑔𝑒𝑂𝑣𝑒𝑟𝑡h𝑒𝑃𝑒𝑟𝑖𝑜𝑑
𝑃𝑢𝑟𝑐h𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒𝑜𝑓𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑦
  =
Expected Return for A Stock
 Expected Return

“... is weighted average of historical returns.”

 Expected Return

“... is weighted average of historical returns.”

  E(Ri) =
Expected return on stock The actual return on
investment i. investment in shares i in
condition j.
The probability of obtaining a profit
in condition j.
 Application
Economic Probability Return
Conditions
Good 30% 20%

Normal 40% 18%

Bad 30% 15%

  E(Ri) =

E(Ri) = ((30% (20%) +

If the probability is
unknown and only data
from observations over
 
several periods are E (Rp) =
obtained, the formula is
as follows. The returns that occur during the
observation period.
Application
Observation Period Return
1 16%
2 18%
3 20%
4 17%
5 21%

E(R●p) = 
Expected
Return From
Portfolio
 Expected Return From Portofolio
 

Note:
E(Rp) = Expected return from portfolio
E(Ri) = Expected return from investment in stocks I
J = The proportion of funds allocated
 Application of the Formula
Suppose you have IDR10 million which you invest to common stock A and B.

Stock E(Ri) P1i P2 i P3i P4i P5i

A 8% 0% 25% 50% 75% 100%

B 10% 100% 75% 50% 25% 0%

Application
The expected return from portfolio will be
E(Rp1) = 8% (0%) + 10% (100%) = 10%
E(Rp2) = 8% (25%) + 10% (75%) = 9,5%
E(Rp3) = 8% (50%) + 10% (50%) = 9%
E(Rp4) = 8% (75%) + 10% (25%) = 8,5%
E(Rp5) = 8% (100%) + 10% (0%) = 8%
If Ri is known, the expected return from
portfolio depends on probability or the
proportion of funds
 E(Rp)
10%
9,5% E
9% D
8,5% C
8% B
A

Proportion
100% A 75% A 50% A 25% A 0% A
0% B 25% B 50% B 75% B 100% B
Value of Stocks and Portfolio
Suppose you have IDR 5 million that you invest in
two stocks
Number of Total
Stock Name Shares Initial Price Investment Proportion
Owned

PWON 4000 486 1944000 38,8%

PTPP 2000 1410 2820000 56,4%

WICO 400 590 236000 4,72

TOTAL 6400 - 5000000 100%

 Expected Price per Stocks Expected Return on the
Stock Name Number of Shares Owned
in the End of the Period End of the Period

PWON 4000 500 2000000

PTPP 2000 1490 2980000
WICO 400 620 248000

TOTAL 6400 - 5228000

Expected Return on Portfolio = (5228000 – 5000000)/5000000 * 100%
= 1,05%
 Drawback of Expected Return

Market is volatile
Don’t make investment decision based on expected return alone
 REVIEW QUESTIONS

Alfatira is considering investing in a stock and is aware that the return on that investment is
particularly sensitive to how the economy is performing. Her analysis suggests that four
states of the economy can affect the return on the investment. Using the table of returns and
probabilities shown below.
What is the expected return on Alfatira's investment? (%)

Conditions Probability Return

Boom 0.2 25.00%
Good 0.2 15.00%
Level 0.4 10.00%
Slump 0.2 -5.00%
 REVIEW QUESTIONS

Alfatira is considering investing in a stock and is aware that the return on that investment is
particularly sensitive to how the economy is performing. Her analysis suggests that four
states of the economy can affect the return on the investment. Using the table of returns and
probabilities shown below.
What is the expected return on Alfatira's investment? (%)

Probability Return
Boom 0.2 25.00% = 5%
Good 0.2 15.00% = 3%
Level 0.4 10.00% = 4%
Slump 0.2 -5.00% = (-1%)
-------- +
11%
 REVIEW QUESTIONS

Suppose that you have a budget of 21,3 million rupiah that you invest in 3 stocks
Stock Number of Initial Stock Total Proportion in the
Name shares Price Investment Portfolio
owned

X 1.000 5.300 5.300.000 (5,3/21,3)*100% =

24,88%

Y 2.000 3.500 7.000.000 (7/21,3)*100% =

32,86 %

Z 1.500 6.000 9.000.000 (9/21,3)*100%=

42,25%

TOTAL 4.500 - 21.300.000 100%

 REVIEW QUESTIONS

Fill the table below

Expected Price Expected
If you expect the price of Number of per Stocks in Return on the
Stock Name
stock: Shares Owned the End of the
Period
End of the
Period

X 1.000
- X increase by 4%
Y 2.000
- Y increase by 8% Z 1.500
- Z increase by 2,5%
TOTAL 4.500 -
 Thank you!
Do you have any question?

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