Lecture8_Slides_6perpage - Recap: Risk and Return FINS1613...

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1 FINS 1613 BUSINESS FINANCE Dr. Gloria Y. Tian School of Banking & Finance y.tian@unsw.edu.au Recap: Risk and Return Lecture 08 Measures of return & risk o Rate of return o Geometric vs. arithmetic returns o Standard deviation as a measure of total risk 2 Return & Risk o Can be used to describe what already happened o Future: expected return & risk o Risk-averse investors require compensation for bearing risk Different forms of market efficiency Recap: Risk and Return (Cont.) Lecture 07 3 C APITAL A SSET P RICING M ODEL (CAPM) RTBWJ Chapters 11 CAPITAL ASSET PRICING MODEL 5 CONTENTS Classification of Risks 1.1 Systematic Risk (non-diversifiable) 1.2 Idiosyncratic Risk (diversifiable) Portfolios 2.1 Portfolio: The two types of risks 2.2 Portfolio Expected Return 2.3 Portfolio Risk Capital Asset Pricing Model 3.1 Beta as a Measure of Risk 3.2 CAPM and Security Market Line 3.3 CAPM and the Portfolio 6
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2 CLASSIFICATION OF RISKS Lecture 08 7 Two Types of Risks 8 Two Types of Risks (Cont.) Systematic Risk 9 Idiosyncratic Risk Two Types of Risks (Cont.) Systematic Risk: other examples? Idiosyncratic Risk: other examples? 10 PORTFOLIOS Portfolio: 11 o A combination of different assets o We know the amount invested in each asset What is the combined portfolio expected return ? What is the combined portfolio risk ? Portfolio: An Example 12
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3 Portfolio: An Example (Cont.) Systematic Risk Lecture 08 13 Portfolio: An Example (Cont.) Idiosyncratic Risk 14 Two Types of Risks 15
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Lecture8_Slides_6perpage - Recap: Risk and Return FINS1613...

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