6/5/2012 CHAPTER 6. RISK AND RATES OF give birth Yuntaek Pae, PhD companion prof of Finance Lewis University damages Dollar indemnification = $ real - $ invested Rate of recollect = $ surrender / $ invested 1 6/5/2012 chance The chance that some unfavorable event result occur Stand-alone risk Portfolio cup of tea risk No investment should be undertaken unless the evaluate rate of return is luxuriously enough to compensate for the perceived risk STAND scarcely RISK RISK IN A PORTFOLIO RISK AND RETURN 2 6/5/2012 Statistical measures of Stand-alone Risk Probabilit y Distribution Ë anticipate rate of return (r) historic rates of return (r) step deviation (? ) Coefficien t of mutation (CV) Probability distribution and pass judgment return 3 6/5/2012 Probability distribution and expected return judge return using historical data judge return = the add up of previous(prenominal) returns 4 6/5/20 12 The measurement difference of opinion (1) taproom of how cold the literal return is likely to deviate from the expected return. Two methods base on probability distribution Historical data base on probability distribution 5 6/5/2012 Based on historical data Issues of using historical data It is often employ as an estimate of prox risk because past repeats.
Then how far should we measure? What most the future is very different from the past? 6 6/5/2012 Coefficient of Variation Expected recollect A B 10% 10% sample deviance 5% 20% Expected Return A B 10% 40% Standard Deviation 5% 20% Coeffici! ent of Variation CV ? Standard deviation(? ) Ë Expected Return(r) Expected Return A B 10% 10% Expected Return A B 10% 40% Standard Deviation 5% 20% Standard Deviation 5% 20% CV 0.5 2 CV 0.5 0.5 7 6/5/2012 Expected Return A B 25% 40% Standard Deviation 5% 15% CV Expected Return A B 10% 15% Standard Deviation 7% 9% CV Expected Return A B 13% 10% Standard Deviation 7% 5% CV...If you want to get a integral essay, order it on our website: OrderCustomPaper.com
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