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chap_11 - Chapter 11 RISK AND RETURN SLIDES 11.1 11.2 11.3...

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Chapter 11 RISK AND RETURN SLIDES 11.1 Key Concepts and Skills 11.2 Chapter Outline 11.3 Expected Returns 11.4 Example: Expected Returns 11.5 Variance and Standard Deviation 11.6 Example: Variance and Standard Deviation 11.7 Another Example 11.8 Portfolios 11.9 Example: Portfolio Weights 11.10 Portfolio Expected Returns 11.11 Example: Expected Portfolio Returns 11.12 Portfolio Variance 11.13 Example: Portfolio Variance 11.14 Another Example 11.15 Expected versus Unexpected Returns 11.16 Announcements and News 11.17 Efficient Markets 11.18 Systematic Risk 11.19 Unsystematic Risk 11.20 Returns 11.21 Diversification 11.22 Table 11.7 11.23 The Principle of Diversification 11.24 Figure 11.1 11.25 Diversifiable Risk 11.26 Total Risk 11.27 Systematic Risk Principle 11.28 Measuring Systematic Risk 11.29 Table 11.8 11.30 Example: Work the Web 11.31 Total versus Systematic Risk 11.32 Example: Portfolio Betas 11.33 Beta and the Risk Premium 11.34 Example: Portfolio Expected Returns and Betas 11.35 Reward-to-Risk Ratio: Definition and Example 11.36 Market Equilibrium 11.37 Security Market Line 11.38 Capital Asset Pricing Model 11.39 Factors Affecting Expected Return
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A-132 RISK AND RETURN SLIDES – CONTINUED CHAPTER WEB SITES Web sites may be referenced more than once in a chapter. This table just includes the section for the first reference. Chapter Section Web Address 11.2 www.bloomberguniversity.com 11.3 www.quicken.com 11.5 www.investopedia.com/university 11.6 www.wallstreetcity.com moneycentral.msn.com finance.yahoo.com money.cnn.com What’s On the Web? www.hoovers.com CHAPTER ORGANIZATION 11.1 Expected Returns and Variances Expected Return Calculating the Variance 11.2 Portfolios Portfolio Weights Portfolio Expected Returns Portfolio Variance 11.3 Announcements, Surprises, and Expected Returns Expected and Unexpected Returns Announcements and News 11.4 Risk: Systematic and Unsystematic Systematic and Unsystematic Risk Systematic and Unsystematic Components of Return 11.5 Diversification and Portfolio Risk The Effect of Diversification: Another Lesson from Market History The Principle of Diversification Diversification and Unsystematic Risk Diversification and Systematic Risk 11.40 Example – CAPM 11.41 SML and Equilibrium 11.42 Quick Quiz
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CHAPTER 11 A-133 11.6 Systematic Risk and Beta The Systematic Risk Principle Measuring Systematic Risk Portfolio Betas 11.7 The Security Market Line Beta and the Risk Premium The Security Market Line 11.8 The SML and the Cost of Capital: A Preview The Basic Idea The Cost of Capital ANNOTATED CHAPTER OUTLINE Slide 11.1 Key Concepts and Skills Slide 11.2 Chapter Outline 11.1. Expected Returns and Variances .A Expected Return Let n denote the total number of states of the economy, R i the return in state i, and p i the probability of state i. Then the expected return, E(R), is given by: = = n 1 i i i R p E(R) Example: State of economy Probability Return Product +1% change in GDP .25 -.05 -.0125 +2% change in GDP .50 .15 .0750 +3% change in GDP .25 .35 .0875 Sums 1.00 E(R) = .15 Projected risk premium = expected return minus risk-free rate = E(R) – R f Slide 11.3 Expected Returns Slide 11.4 Example: Expected Returns .B Calculating the Variance
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A-134 RISK AND RETURN = - = = n 1 i 2 i i 2 E(R)) R ( p Var(R) σ
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