Ch06A-Risks-Returns-PART-A-CM-Salaar

Ch06A-Risks-Returns-PART-A-CM-Salaar - Salaar Finance...

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Salaar - Finance n What is return? n What is risk? n Sources of risk? n Types of risk? n How to measure risk? n How to measure returns? n n Practice Problems
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Salaar - Finance Returns Objective of Investors   n To maximize expected returns n Constraint: risk
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Salaar - Finance Returns Components of investment returns   n Yield Income component of a security’s return from cash flows Relates the C/F’s to the price of the security n Capital gain (loss) Change in price of a security over time
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Salaar - Finance Returns Components of investment returns   n Total Return = Yield + Price Change (CG) Yield can be 0 or + CG can be 0,+ or -
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Salaar - Finance Returns Examples  of components n A Bond purchased at par held to maturity: ?  Yield only n n A non-dividend stock? PG only n A dividend paying stock? Y+PG
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Salaar - Finance What is Risk? UNCERTAINTY OF FUTURE OUTCOMES Definition of Risk:  Risk is the Probability… ACTUAL OUTCOME  will be different from  EXPECTED OUTCOME . Which outcome are we discussing? Future Returns
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Salaar - Finance Risk exposure involves Future time. Τ= 0 Τ= Future Decision Expected Outcome  1,2…n (return) RISK of deviation UNCERTAINTY Risk Calculation is on Historical Data T=0 T=-n
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Salaar - Finance What are the Sources of Risk? Price risk 
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This note was uploaded on 05/20/2010 for the course BUSINESS 101 taught by Professor Xyz during the Spring '10 term at Louisiana College.

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Ch06A-Risks-Returns-PART-A-CM-Salaar - Salaar Finance...

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