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Portfolio Management 2-3
Portfolio Management 2-3
Wealth Planning
Doç. Dr. Ayben Koy
akoy@ticaret.edu.tr
Effective Annual Rate
Total return as a rate of return for a common period,
But we express all investment returns as effective annual rate (EAR).
Effective annual rate defined as the percentage increase in funds invested over a 1 year horizon.
EAR = 5.49%
= 0.14
EXAMPLE?
The higher volatility in outcomes, the higher will be the average value of these squared
deviations.
The Standard Deviation
EXAMPLE
Probability Holding period return (HPR)
Risk Premium is the difference between holding period return and risk-free rate.
Risk-free assets are Tbills, Money market funds, Money in the bank,…
CFA QUESTION 1
Given 100.000$ to invest, what is the expected risk premium in dollars of investing in equities
versus risk free T-bills based on the following table?
EXP. RETURN INVESTING IN EQUITIES
(0.60 x 0.50) + ( 0.40 x – 0.30) = 0.18
= 10 %
CFA QUESTION 3
Reference
Bodie, Z., Kane, A., & Marcus, A. J. Essentials of Investments 8th Edition. McGraw-Hill.