Ch 11 Systematic Risk Part I-2

Ch 11 Systematic Risk Part I-2 - Chapter 11 Systematic Risk...

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Chapter 11 Systematic Risk and the Equity Risk Premium Part I
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6 FINA 111 – Part II FINA 111 Part II Valuation of Securities Measuring and Pricing Risk Financing Policy Bonds Ch 6 Stocks Ch 9 Risk-Return Tradeoff Ch 10 Risk Diversification and Risk Pricing Ch 11 Cost of Capital Ch 12 Debt Policy Ch 15 Payout Policy Ch 16 Done Done Next Done
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7 Firm Valuation Firm Valuation Measuring and Pricing Risk Ch 10,11 Asset Valuation Ch 4,7,8,18 Financing Policies: Cost of Capital Ch 12 Capital Structure Ch 15 Payout Policy Ch 16 Securities Valuation: Bonds Ch 6 Stocks Ch 9 External Factors
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8 Stock Pricing Pricing Models: DDM, Payout, FCF, Relative Valuation models Market Price of Stock Supply (Company) Factors Macro Factors: •Economic situation •Regulatory environment •Market condition (supply and demand) Micro Factors: Demand (Investor) Factors •Market Efficiency – Information and competition – Ch 9 •Risk - Risk Aversion, Systematic risk, Risk-Return Tradeoff, Risk Pricing – Ch 10, 11 Next
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9 Risk and Return in Investments Investments Risk Return Risk-Return Tradeoff: Ch 10 Pricing Risk Ch 11 Reducing Risk Portfolio Diversification: Ch 11 Hedging Risk Use of Financial Derivatives Across Asset Classes Within an Asset Class
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10 Measuring Risk, Portfolio Diversification, Pricing Risk Risk-return Tradeoff Ch 10 Portfolio Diversification Beta – measure of systematic risk Ch 11 Pricing Risk – Capital Asset Pricing Model (CAPM) Ch 11 Relevant risk: Systematic Risk Ch 10
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11 Portfolio Return, Risk and Risk Pricing Investor’s Portfolio 1. Portfolio Return 2. Portfolio Risk 3. Systematic Risk - Beta 4. Capital Asset Pricing Model (CAPM)
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12 Chapter Outline 1. The Expected Return of a Portfolio 2. The Volatility of a Portfolio 3. Measuring Systematic Risk 4. Putting it All Together: The Capital Asset Pricing Model
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13 Portfolio Return, Risk and Risk Pricing Investor’s Portfolio 1. Portfolio Return 2. Portfolio Risk 3. Systematic Risk - Beta 4. Capital Asset Pricing Model (CAPM)
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14 Portfolio Diversification c With no reward for bearing unsystematic risk, rational investors should choose to diversify risk by holding a portfolio of risky assets across industries and across asset classes. c As portfolio size increases, systematic risk as risk of portfolio rises c Financial managers should therefore be mindful that investors hold a company’s stock as part of a larger portfolio and understand the implications
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15 Portfolio Return, Risk and Risk Pricing Investor’s Portfolio 1. Portfolio Return 2. Portfolio Risk 3. Systematic Risk - Beta 4. Capital Asset Pricing Model (CAPM)
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1. Return on a Portfolio c The return on a portfolio , R p , is the weighted average of the returns on the investments in the portfolio, where the weights correspond to portfolio weights: 1 1 2 2 ... P
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Ch 11 Systematic Risk Part I-2 - Chapter 11 Systematic Risk...

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