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Chapter_8_text_powerpoint - Risk and Rates of Return...

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Unformatted text preview: Risk and Rates of Return Chapter 8 Stand-Alone Risk Portfolio Risk Risk and Return: CAPM/SML 8-1 Investment Returns The rate of return on an investment can be calculated as follows: 8-2 ( 29 Cost Cost value ending Expected Return- = What is investment risk? Two types of investment risk Stand-alone risk Portfolio risk Investment risk is related to the probability of earning a low or negative actual return. The greater the chance of lower than expected or negative returns, the riskier the investment. 8-3 Probability Distributions A listing of all possible outcomes, and the probability of each occurrence. Can be shown graphically. Expected Rate of Return Rate of Return (%) 100 15-70 Firm X Firm Y 8-4 Calculating Standard Deviation =- = = = = N 1 i i 2 2 P ) r r ( Variance deviation Standard 8-5 Coefficient of Variation (CV) 8-6 A standardized measure of dispersion about the expected value, that shows the risk per unit of return....
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Chapter_8_text_powerpoint - Risk and Rates of Return...

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