Module1_PortMgmt_Lecture

Module1_PortMgmt_Lecture - Course Outline: I Introduction,...

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Unformatted text preview: Course Outline: I Introduction, Measuring risk - single asset II Measuring risk two assets (Chapter 3) III In Class work on Calulation of Std & Returns CONTINENTAL AIRLINES INC (CAL) Computation of Expected Return & Variance State Economy Oil price Error: e(i) p(i)*e(i) Error: e(i)^2 1 Strong High 0.0820 0.0600 0.0049-0.018020-0.001081 0.000325 0.000019 2 Strong Medium 0.1600 0.1200 0.0192 0.059980 0.007198 0.003598 0.000432 3 Strong Low 0.3600 0.1500 0.0540 0.259980 0.038997 0.067590 0.010138 4 Average High 0.0200 0.1000 0.0020-0.080020-0.008002 0.006403 0.000640 5 Average Medium 0.1000 0.1200 0.0120-0.000020-0.000002 0.000000 0.000000 6 Average Low 0.2200 0.1200 0.0264 0.119980 0.014398 0.014395 0.001727 7 Weak High-0.1500 0.1500-0.0225-0.250020-0.037503 0.062510 0.009377 8 Weak Medium 0.0000 0.1000 0.0000-0.100020-0.010002 0.010004 0.001000 9 Weak Low 0.0500 0.0800 0.0040-0.050020-0.004002 0.002502 0.000200 1.0000 0.1000 0.000000 Variance 0.023534 Error std 0.153409 5.00% 0.026036 6.00% 0.025136 7.00% 0.024436 8.00% 0.023935 Guess Expected Return: 0.12 9.00% 0.023635 10.00% 0.023534 Error: 0.023934 11.00% 0.023634 12.00% 0.023934 13.00% 0.024433 14.00% 0.025133 15.00% 0.026032 Return Outcome: r(i) Probability: p(i) Expected Return: (i)*p(i) Prob Wt Error: p(i)*e(i)^2 Expected Return 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 0.022000 0.022500 0.023000 0.023500 0.024000 0.024500 0.025000 0.025500 0.026000 0.026500 Expected Return Guess and the Resulting Error Column E Expected Return Guess Regret SUNOCO INC. (SUN) Computation of Expected Return & Variance State Economy Oil price Error: e(i) p(i)*e(i) 1 Strong High 0.4000 0.0600 0.0240 0.300050 0.018003 0.090030 0.005402 2 Strong Medium 0.2500 0.1200 0.0300 0.150050 0.018006 0.022515 0.002702 3 Strong Low 0.1070 0.1500 0.0161 0.007050 0.001058 0.000050 0.000007 4 Average High 0.2000 0.1000 0.0200 0.100050 0.010005 0.010010 0.001001 5 Average Medium 0.1500 0.1200 0.0180 0.050050 0.006006 0.002505 0.000301 6 Average Low-0.0500 0.1200-0.0060-0.149950-0.017994 0.022485 0.002698 7 Weak High 0.1500 0.1500 0.0225 0.050050 0.007508 0.002505 0.000376 8 Weak Medium-0.0700 0.1000-0.0070-0.169950-0.016995 0.028883 0.002888 9 Weak Low-0.2200 0.0800-0.0176-0.319950-0.025596 0.102368 0.008189 1.0000 0.1000 0.000000 Variance 0.02356435 std 0.153507 Return Outcome: r(i) Probability: p(i) Expected Return: (i)*p(i) Error: e(i)^2 Prob Wt Error: p(i)*e(i)^2 1 2 3 4 5 6 7 8 9 10-0.3000-0.2000-0.1000 0.0000 0.1000 0.2000 0.3000 0.4000 0.5000 Various Expected Ranges CAL: r(i) SUN: r(i) Mix: r(i) Expected Mean State Return CAL Return Range SUN eturn Range Mix Return Range MIX: CAL & SUN (Equally Weighted) Computation of Expected Return & Variance State Economy Oil price p(i) CAL: r(i) SUN: r(i) Mix: r(i) 1 Strong High 0.06 0.0820 0.4000 0.2410 0.1000 0.1410 0.001193 2 Strong Medium 0.12 0.1600 0.2500 0.2050 0.1000 0.1050 0.001323 3 Strong Low 0.15 0.3600 0.1070 0.2335 0.1000 0.1335 0.002674 4 Average High 0.10 0.02000....
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Module1_PortMgmt_Lecture - Course Outline: I Introduction,...

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