Class9-introductiontorisk(6slides)

Class9-introductiontorisk(6slides) - Todays plan Look at...

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1 page 1 Introduction to Risk class #09 page 2 Today’s plan • Look at price graphs of various financial instruments • Talk about risk • Learn how to calculate returns – average return – estimate the mean return • Learn how to calculate variance page 3 Source: Ibbotson As ociates 0.1 10 1000 1925 1933 1941 1949 1957 1965 1973 1981 1989 1997 S&P Smal Cap Corp Bonds Long Bond T Bil Index Year End $1 $5,520 1,828 55.38 39.07 14.25 A $1 investment in 1926 … page 4 What is going on? Should we all have bought stocks in 1926 ? Who would ever hold T-Bills ? You have saved $4,000 to pay for Cal next year (tuition and fees). Where are you going to put your money for the next 7 months ? 13.0% in the stock market 3.8% buy T-Bills 0.0% under the mattress expected return investment page 5 What is risk ? • Why don’t we immediately put all our college savings in the stock market ? • What are we worried about ? • How can we quantify this ? Is there a common language that allows us to discuss this ? page 6 Using returns Which stock would you rather invest in ? 33.75 $ 207.90 expected price in 1 year expected profit in 1 year cost name 6.75 27 stock B $ 18.90 $ 189 stock A What can we do to make the best decision ?
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Class9-introductiontorisk(6slides) - Todays plan Look at...

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