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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
RewardtoRisk 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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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
CHAPTER 11
A133
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
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This note was uploaded on 05/01/2009 for the course FINC 106 taught by Professor Dr.nehale during the Spring '09 term at Baptist College of Health Sciences.
 Spring '09
 Dr.Nehale

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