MGT+3062+-+Risk_Return+EfficientMarkets

MGT+3062+-+Risk_Return+EfficientMarkets - RiskandReturn...

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1 Risk and Return: Capital Markets Overview Barry Marchman
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2 Objectives Calculate Returns Calculate Mean, Variance, and Standard Deviation of Returns Describe the average return and standard deviation of returns  across different asset classes in the U.S
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3 A question  from the 2006 High School Financial Literacy Survey from the 2006 High School Financial Literacy Survey Kelly and Pete just had a baby. They received money as baby gifts and  want to put it away for the baby's education. Which of the following tends  to have the highest growth over periods of time as long as 18 years? a) A U.S. Govt. savings bond b) A savings account  c) A checking account d) Stocks  
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4 A question  from the 2006 High School Financial Literacy Survey from the 2006 High School Financial Literacy Survey Kelly and Pete just had a baby. They received money as baby gifts and  want to put it away for the baby's education. Which of the following tends  to have the highest growth over periods of time as long as 18 years?   44.8% a) A U.S. Govt. savings bond   34.8% b) A savings account      6.3% c) A checking account * 14.2% d) Stocks   * Correct Answer % of Students who picked each answer.
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5 How are risk and expected return related? There are two main reasons to be concerned with this  question.  (1)  When conducting discounted cash flow analysis, how  should we adjust discount rates to allow for riskiness in the  cash flow projections?  (2) When saving/investing , what is the tradeoff between  taking risks and our expected future wealth?
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6 Average Return Risk The risk-return relationship There is general agreement that the average return should  increase with risk But how should risk be measured? At what rate does the line slope up? Is the relation linear? Let’s look at some historical evidence
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7 Stock Returns We will start our discussion of risk and return by looking at  the performance of returns for different asset classes over the  last 80 years. But first, it is helpful to know how to calculate returns.
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8 The Beardstown Ladies Investment Club What are investment clubs? Not a new idea, they have been around since the 1900s From the  Wall Street Journal  (8/27/84)   Some people have found that pooling investments with neighbors and friends  can be financially rewarding. "I've seen individuals come in and start buying  $300 or $400 worth of stock, and now they are retiring with several hundred  thousand dollars," says Mr. O'Hara, who joined his first investment club in the  1940s. Ladies in this club were:  16 Illinois women: average age was 63 
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MGT+3062+-+Risk_Return+EfficientMarkets - RiskandReturn...

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