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Sapm1 Sapm1 Presentation Transcript

  • RISK & RETURN Akshay Samant
    • Securities to be held
    • Funds to be allocated
    • Portfolio Analysis, Selection and Management
    • Investors are concerned with two inherent
    • properties of securities:
    • -Risk
    • -Return
    • Total Return:
    • C + (P E - P B )
    • R =
    • P B
    • R = total return over the period
    • C = cash payment received during the period
    • P E = ending price of the investment
    • P B = beginning price of the investment
    • Return Relative
    • C + P E
    • =
    • P B
    • Put differently return relative
    • = 1 + total return
    • Cumulative Wealth Index
    • Measures the level of wealth
    • CWI n = WI O (1+R 1 ) (1+R 2 )…….(1+R n)
    • CWI n = Cumulative wealth index at the end of
    • the year
    • WI O = beginning index value which is
    • typically rupee one
    • R i = total return for year i
    • (i = 1,2,……,n)
    • Arithmetic mean: It is the mean of a series of total returns.
    • Geometric mean: It is the nth root of the product resulting from multiplying a series of return relatives minus one.
    • It refers to the possibility that the actual outcome of an investment will differ from the expected outcome.
    • It is variability or dispersion.
    • It is technically different from uncertainty.
    • Sources of systematic risk
    • Sources of unsystematic risk
    • Types of Risk:
    • Systematic risk
    • Unsystematic risk
    • Types of systematic risk:
    • - market risk
    • - interest rate risk
    • - purchasing power risk
    • Types of unsystematic risk
    • - business risk
    • - financial risk
    • Diversifiable risk is unsystematic risk
    • Non-diversifiable risk is systematic risk
    • Total risk = Diversifiable risk + Non-
    • diversifiable risk
    • Beta measures the non-diversifiable risk.
    • Variance and Standard Deviation
    • It is commonly used measure of risk in
    • finance.
    • Expected Return and Risk using Probability Distribution:
    • Expected rate of return
    • Standard deviation of return