LEC1: MANAGEMENT decisions affect share prices. Good decisions increase share prices Ownership and control-Managers may form a sense of self interest Agency relationships-Agents and their fiduciary duties Managerial labour market – theories/ market type Risk and return-Greater the risk, the greater the return needs to be-Higher the risk = less certainty HPR-Capital appreciation – buy a house, the cp is the house price going up-Income (cash flow) – buy a house, rent it, cash flow of rent -R ca = return in capital appreciation, P0 = purchase price -Just for a period of timeRisk and return:-Expected return: have different likelihoods aka nSingle asset portfolios -For every 1% of return, how much risk do I have – LOWER THE BETTERMore than one asset portfolios -X1 – weighted of the stock Correlation is always between -1 and 1-< 1 diversification
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the lower the variance (standard deviation), the lower the risk
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