Ch 10 Risk and Return

Ch 10 Risk and Return - Chapter 10 Risk and Return in...

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Chapter 10 Risk and Return in Capital Markets
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2 http://www.ft.com/cms/s/0/37dcdb88-3611-11df-aa43-00144feabdc0.html
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3 http://dealbook.blogs.nytimes.com/2010/03/09/public-pension-funds-are-adding-risk-to-raise-returns/?scp=1&sq=risk%20and%20return&
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4 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
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5 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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6 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: •Industry & Firm situation 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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7 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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8 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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13 Chapter 10: Outline 1. Historical Levels of Risk and Return 2. Measuring Return and Risk 3. The Historical Tradeoff Between Risk and Return 4. Risk types - Common Versus Independent Risk 5. Relevant risk for Investors: Non- diversifiable portfolio risk
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14 Chapter 10: Outline Risk and Return Historical Levels of Return and Risk Measuring Return and Risk Historical Tradeoff Between Risk and Return Types of Risks Relevant risk for investors
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15 Learning Objectives c Identify which types of securities have historically had the highest returns and which have been the most volatile c Compute the average return and volatility of returns from a set of historical asset prices c Understand the tradeoff between risk and return for large portfolios versus individual stocks c Describe the difference between common and independent risk c Explain how diversified portfolios remove independent risk, leaving common risk as the only risk requiring a risk premium
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16 Chapter 10: Outline Risk and Return Historical Levels of Return and Risk Measuring Return and Risk Historical Tradeoff Between Risk and Return Types of Risks Relevant risk for investors
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17 1. Historical Levels of Risk and Return c The risk premium that investments provide affects investors decisions and returns.
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This note was uploaded on 08/10/2011 for the course FINA 101 taught by Professor X during the Spring '11 term at HKUST.

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Ch 10 Risk and Return - Chapter 10 Risk and Return in...

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