1. The document discusses risk and return, defining concepts like expected return, risk, standard deviation, beta, and models like the Capital Asset Pricing Model (CAPM).
2. It provides examples of how to calculate expected return, standard deviation, and beta for both discrete and continuous probability distributions.
3. The CAPM model relates a security's expected return to market risk (beta) and the risk-free rate, stating that expected return equals the risk-free rate plus a risk premium based on beta.
risk and return. Defining Return, Return Example, Defining Risk,Determining Expected Return , How to Determine the Expected Return and Standard Deviation, Determining Standard Deviation (Risk Measure), Portfolio Risk and Expected Return Example, Determining Portfolio Expected Return, Determining Portfolio Standard Deviation, Summary of the Portfolio Return and Risk Calculation, Total Risk = Systematic Risk + Unsystematic Risk,
risk and return. Defining Return, Return Example, Defining Risk,Determining Expected Return , How to Determine the Expected Return and Standard Deviation, Determining Standard Deviation (Risk Measure), Portfolio Risk and Expected Return Example, Determining Portfolio Expected Return, Determining Portfolio Standard Deviation, Summary of the Portfolio Return and Risk Calculation, Total Risk = Systematic Risk + Unsystematic Risk,
Risk and Return: Portfolio Theory and Assets Pricing ModelsPANKAJ PANDEY
Discuss the concepts of portfolio risk and return.
Determine the relationship between risk and return of portfolios.
Highlight the difference between systematic and unsystematic risks.
Examine the logic of portfolio theory .
Show the use of capital asset pricing model (CAPM) in the valuation of securities.
Explain the features and modus operandi of the arbitrage pricing theory (APT).
Return is the amount of gain or loss of an Investment for a particular period of time.
The future is uncertain. When we are dealing with the future, we assign probabilities to future returns. The Expected rate of return on an investment represents the mean probability distribution of possible future returns.
Risk reflects the chance that the actual return on an investment may be different than the expected return.
One way to measure risk is to calculate the variance and standard deviation of the distribution of returns.
We will once again use a probability distribution in our calculations.
This is the fifth presentation for the University of New England Graduate School of Business course GSB711 Managerial Finance, offered by Dr Subba Reddy Yarram. This presentation examines risk, return and the Capital Asset Pricing Model (CAPM).
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This insightful presentation is designed to equip entrepreneurs with the essential knowledge and tools needed to accurately value their businesses. Understanding business valuation is crucial for making informed decisions, whether you're seeking investment, planning to sell, or simply want to gauge your company's worth.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
[Note: This is a partial preview. To download this presentation, visit:
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Sustainability has become an increasingly critical topic as the world recognizes the need to protect our planet and its resources for future generations. Sustainability means meeting our current needs without compromising the ability of future generations to meet theirs. It involves long-term planning and consideration of the consequences of our actions. The goal is to create strategies that ensure the long-term viability of People, Planet, and Profit.
Leading companies such as Nike, Toyota, and Siemens are prioritizing sustainable innovation in their business models, setting an example for others to follow. In this Sustainability training presentation, you will learn key concepts, principles, and practices of sustainability applicable across industries. This training aims to create awareness and educate employees, senior executives, consultants, and other key stakeholders, including investors, policymakers, and supply chain partners, on the importance and implementation of sustainability.
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1. Develop a comprehensive understanding of the fundamental principles and concepts that form the foundation of sustainability within corporate environments.
2. Explore the sustainability implementation model, focusing on effective measures and reporting strategies to track and communicate sustainability efforts.
3. Identify and define best practices and critical success factors essential for achieving sustainability goals within organizations.
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1. Introduction and Key Concepts of Sustainability
2. Principles and Practices of Sustainability
3. Measures and Reporting in Sustainability
4. Sustainability Implementation & Best Practices
To download the complete presentation, visit: https://www.oeconsulting.com.sg/training-presentations
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
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Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
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Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
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Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your company’s legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, we’ll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
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2. 2
Risk and ReturnRisk and Return
Defining Risk and Return
Using Probability Distributions to
Measure Risk
Attitudes Toward Risk
Risk and Return in a Portfolio Context
Diversification
The Capital Asset Pricing Model (CAPM)
3. 3
Defining ReturnDefining Return
Income receivedIncome received on an investment
plus any change in market pricechange in market price,
usually expressed as a percent of
the beginning market pricebeginning market price of the
investment.
DDtt + (PPtt - P- Pt-1t-1 )
PPt-1t-1
R =
4. 4
Return ExampleReturn Example
The stock price for Stock A was $10$10 per
share 1 year ago. The stock is currently
trading at $9.50$9.50 per share, and
shareholders just received a $1 dividend$1 dividend.
What return was earned over the past year?
5. 5
Return ExampleReturn Example
The stock price for Stock A was $10$10 per
share 1 year ago. The stock is currently
trading at $9.50$9.50 per share, and
shareholders just received a $1 dividend$1 dividend.
What return was earned over the past year?
$1.00$1.00 + ($9.50$9.50 - $10.00$10.00 )
$10.00$10.00RR = = 5%5%
6. 6
Defining RiskDefining Risk
What rate of return do you expect on yourWhat rate of return do you expect on your
investment (savings) this year?investment (savings) this year?
What rate will you actually earn?What rate will you actually earn?
Does it matter if it is a bank CD or a shareDoes it matter if it is a bank CD or a share
of stock?of stock?
The variability of returns fromThe variability of returns from
those that are expected.those that are expected.
7. 7
Determining ExpectedDetermining Expected
Return (Discrete Dist.)Return (Discrete Dist.)
R = Σ ( Ri )( Pi )
R is the expected return for the asset,
Ri is the return for the ith
possibility,
Pi is the probability of that return
occurring,
n is the total number of possibilities.
n
i=1
8. 8
How to Determine the ExpectedHow to Determine the Expected
Return and Standard DeviationReturn and Standard Deviation
Stock BW
Ri Pi (Ri)(Pi)
-.15 .10 -.015
-.03 .20 -.006
.09 .40 .036
.21 .20 .042
.33 .10 .033
Sum 1.00 .090.090
The
expected
return, R,
for Stock
BW is .09
or 9%
9. 9
Determining StandardDetermining Standard
Deviation (Risk Measure)Deviation (Risk Measure)
σσ = Σ ( Ri - R )2
( Pi )
Standard DeviationStandard Deviation, σσ, is a statistical
measure of the variability of a distribution
around its mean.
It is the square root of variance.
Note, this is for a discrete distribution.
n
i=1
10. 10
How to Determine the ExpectedHow to Determine the Expected
Return and Standard DeviationReturn and Standard Deviation
Stock BW
Ri Pi (Ri)(Pi) (Ri - R )2
(Pi)
-.15 .10 -.015 .00576
-.03 .20 -.006 .00288
.09 .40 .036 .00000
.21 .20 .042 .00288
.33 .10 .033 .00576
Sum 1.00 .090.090 .01728.01728
12. 12
Coefficient of VariationCoefficient of Variation
The ratio of the standard deviationstandard deviation of
a distribution to the meanmean of that
distribution.
It is a measure of RELATIVERELATIVE risk.
CV = σσ / RR
CV of BW = .1315.1315 / .09.09 = 1.46
14. 14
Determining ExpectedDetermining Expected
Return (Continuous Dist.)Return (Continuous Dist.)
R = Σ ( Ri ) / ( n )
R is the expected return for the asset,
Ri is the return for the ith observation,
n is the total number of observations.
n
i=1
15. 15
Determining StandardDetermining Standard
Deviation (Risk Measure)Deviation (Risk Measure)
n
i=1
σσ = Σ ( Ri - R )2
( n )
Note, this is for a continuous
distribution where the distribution is
for a population. R represents the
population mean in this example.
16. 16
ContinuousContinuous
Distribution ProblemDistribution Problem
Assume that the following list represents the
continuous distribution of population returns
for a particular investment (even though
there are only 10 returns).
9.6%, -15.4%, 26.7%, -0.2%, 20.9%,
28.3%, -5.9%, 3.3%, 12.2%, 10.5%
Calculate the Expected Return and
Standard Deviation for the population
assuming a continuous distribution.
17. 17
Let’s Use the Calculator!Let’s Use the Calculator!
Enter “Data” first. Press:
2nd
Data
2nd
CLR Work
9.6 ENTER ↓ ↓
-15.4 ENTER ↓ ↓
26.7 ENTER ↓ ↓
Note, we are inputting data
only for the “X” variable and
ignoring entries for the “Y”
variable in this case.
18. 18
Let’s Use the Calculator!Let’s Use the Calculator!
Enter “Data” first. Press:
-0.2 ENTER ↓ ↓
20.9 ENTER ↓ ↓
28.3 ENTER ↓ ↓
-5.9 ENTER ↓ ↓
3.3 ENTER ↓ ↓
12.2 ENTER ↓ ↓
10.5 ENTER ↓ ↓
19. 19
Let’s Use the Calculator!Let’s Use the Calculator!
Examine Results! Press:
2nd
Stat
↓ through the results.
Expected return is 9% for
the 10 observations.
Population standard
deviation is 13.32%.
This can be much quicker
than calculating by hand,
but slower than using a
spreadsheet.
20. 20
Certainty EquivalentCertainty Equivalent (CECE) is the
amount of cash someone would
require with certainty at a point in
time to make the individual
indifferent between that certain
amount and an amount expected to
be received with risk at the same
point in time.
Risk AttitudesRisk Attitudes
21. 21
Certainty equivalent > Expected value
Risk PreferenceRisk Preference
Certainty equivalent = Expected value
Risk IndifferenceRisk Indifference
Certainty equivalent < Expected value
Risk AversionRisk Aversion
Most individuals are Risk AverseRisk Averse.
Risk AttitudesRisk Attitudes
22. 22
Risk Attitude ExampleRisk Attitude Example
You have the choice between (1) a guaranteed
dollar reward or (2) a coin-flip gamble of
$100,000 (50% chance) or $0 (50% chance).
The expected value of the gamble is $50,000.
Mary requires a guaranteed $25,000, or more, to
call off the gamble.
Raleigh is just as happy to take $50,000 or take
the risky gamble.
Shannon requires at least $52,000 to call off the
gamble.
23. 23
What are the Risk Attitude tendencies of each?What are the Risk Attitude tendencies of each?
Risk Attitude ExampleRisk Attitude Example
Mary shows “risk aversion”“risk aversion” because her
“certainty equivalent” < the expected value of
the gamble..
Raleigh exhibits “risk indifference”“risk indifference” because her
“certainty equivalent” equals the expected value
of the gamble..
Shannon reveals a “risk preference”“risk preference” because
her “certainty equivalent” > the expected value
of the gamble..
24. 24
RP = Σ ( Wj )( Rj )
RP is the expected return for the portfolio,
Wj is the weight (investment proportion)
for the jth
asset in the portfolio,
Rj is the expected return of the jth
asset,
m is the total number of assets in the
portfolio.
Determining PortfolioDetermining Portfolio
Expected ReturnExpected Return
m
j=1
25. 25
Determining PortfolioDetermining Portfolio
Standard DeviationStandard Deviation
m
j=1
m
k=1
σσPP = Σ Σ Wj Wk σjk
Wj is the weight (investment proportion)
for the jth
asset in the portfolio,
Wk is the weight (investment proportion) for
the kth
asset in the portfolio,
σjk is the covariance between returns for
the jth
and kth
assets in the portfolio.
26. 26
What is Covariance?What is Covariance?
σσ jk = σ j σ k rr jk
σj is the standard deviation of the jth
asset
in the portfolio,
σkis the standard deviation of the kth
asset
in the portfolio,
rjk is the correlation coefficient between the
jth
and kth
assets in the portfolio.
27. 27
Correlation CoefficientCorrelation Coefficient
A standardized statistical measure
of the linear relationship between
two variables.
Its range is from -1.0-1.0 (perfect
negative correlation), through 00
(no correlation), to +1.0+1.0 (perfect
positive correlation).
28. 36
Stock C Stock D Portfolio
ReturnReturn 9.00% 8.00% 8.64%
Stand.Stand.
Dev.Dev. 13.15% 10.65% 10.91%
CVCV 1.46 1.33 1.26
The portfolio has the LOWEST coefficient
of variation due to diversification.
Summary of the PortfolioSummary of the Portfolio
Return and Risk CalculationReturn and Risk Calculation
29. 37
Combining securities that are not perfectly,
positively correlated reduces risk.
Diversification and theDiversification and the
Correlation CoefficientCorrelation Coefficient
INVESTMENTRETURN
TIME TIMETIME
SECURITY ESECURITY E SECURITY FSECURITY F
CombinationCombination
E and FE and F
30. 38
Systematic RiskSystematic Risk is the variability of return on
stocks or portfolios associated with changes
in return on the market as a whole.
Unsystematic RiskUnsystematic Risk is the variability of return
on stocks or portfolios not explained by
general market movements. It is avoidable
through diversification.
Total Risk = SystematicTotal Risk = Systematic
Risk + Unsystematic RiskRisk + Unsystematic Risk
Total RiskTotal Risk = SystematicSystematic RiskRisk +
UnsystematicUnsystematic RiskRisk
31. 39
Total Risk = SystematicTotal Risk = Systematic
Risk + Unsystematic RiskRisk + Unsystematic Risk
TotalTotal
RiskRisk
Unsystematic riskUnsystematic risk
Systematic riskSystematic risk
STDDEVOFPORTFOLIORETURN
NUMBER OF SECURITIES IN THE PORTFOLIO
Factors such as changes in nation’s
economy, tax reform by the Congress,
or a change in the world situation.
32. 40
Total Risk = SystematicTotal Risk = Systematic
Risk + Unsystematic RiskRisk + Unsystematic Risk
TotalTotal
RiskRisk
Unsystematic riskUnsystematic risk
Systematic riskSystematic risk
STDDEVOFPORTFOLIORETURN
NUMBER OF SECURITIES IN THE PORTFOLIO
Factors unique to a particular company
or industry. For example, the death of a
key executive or loss of a governmental
defense contract.
33. 41
CAPM is a model that describes the
relationship between risk and
expected (required) return; in this
model, a security’s expected
(required) return is the risk-free raterisk-free rate
plus a premiuma premium based on the
systematic risksystematic risk of the security.
Capital AssetCapital Asset
Pricing Model (CAPM)Pricing Model (CAPM)
34. 42
1. Capital markets are efficient.
2. Homogeneous investor expectations
over a given period.
3. Risk-freeRisk-free asset return is certain
(use short- to intermediate-term
Treasuries as a proxy).
4. Market portfolio contains only
systematic risksystematic risk (use S&P 500 Index
or similar as a proxy).
CAPM AssumptionsCAPM Assumptions
35. 43
Characteristic LineCharacteristic Line
EXCESS RETURN
ON STOCK
EXCESS RETURN
ON MARKET PORTFOLIO
BetaBeta =
RiseRise
RunRun
Narrower spreadNarrower spread
is higher correlationis higher correlation
Characteristic LineCharacteristic Line
36. 44
Calculating “Beta”Calculating “Beta”
on Your Calculatoron Your Calculator
Time Pd. Market My Stock
1 9.6% 12%
2 -15.4% -5%
3 26.7% 19%
4 -.2% 3%
5 20.9% 13%
6 28.3% 14%
7 -5.9% -9%
8 3.3% -1%
9 12.2% 12%
10 10.5% 10%
The Market
and My
Stock
returns are
“excess
returns” and
have the
riskless rate
already
subtracted.
37. 45
Calculating “Beta”Calculating “Beta”
on Your Calculatoron Your Calculator
Assume that the previous continuous
distribution problem represents the “excess
returns” of the market portfolio (it may still be
in your calculator data worksheet -- 2nd
Data ).
Enter the excess market returns as “X”
observations of: 9.6%, -15.4%, 26.7%, -0.2%,
20.9%, 28.3%, -5.9%, 3.3%, 12.2%, and 10.5%.
Enter the excess stock returns as “Y” observations
of: 12%, -5%, 19%, 3%, 13%, 14%, -9%, -1%,
12%, and 10%.
38. 46
Calculating “Beta”Calculating “Beta”
on Your Calculatoron Your Calculator
Let us examine again the statistical
results (Press 2nd
and then Stat )
The market expected return and standard
deviation is 9% and 13.32%. Your stock
expected return and standard deviation is
6.8% and 8.76%.
The regression equation is Y=a+bX. Thus, our
characteristic line is Y = 1.4448 + 0.595 X and
indicates that our stock has a beta of 0.595.
39. 47
An index of systematic risksystematic risk.
It measures the sensitivity of a
stock’s returns to changes in
returns on the market portfolio.
The betabeta for a portfolio is simply a
weighted average of the individual
stock betas in the portfolio.
What is Beta?What is Beta?
40. 48
Characteristic LinesCharacteristic Lines
and Different Betasand Different Betas
EXCESS RETURN
ON STOCK
EXCESS RETURN
ON MARKET PORTFOLIO
Beta < 1Beta < 1
(defensive)(defensive)
Beta = 1Beta = 1
Beta > 1Beta > 1
(aggressive)(aggressive)
Each characteristiccharacteristic
lineline has a
different slope.
41. 49
RRjj is the required rate of return for stock j,
RRff is the risk-free rate of return,
ββjj is the beta of stock j (measures
systematic risk of stock j),
RRMM is the expected return for the market
portfolio.
Security Market LineSecurity Market Line
RRjj = RRff + ββj(RRMM - RRff)
43. 51
Lisa Miller at Basket Wonders is
attempting to determine the rate of return
required by their stock investors. Lisa is
using a 6% R6% Rff and a long-term marketmarket
expected rate of returnexpected rate of return of 10%10%. A stock
analyst following the firm has calculated
that the firm betabeta is 1.21.2. What is the
required rate of returnrequired rate of return on the stock of
Basket Wonders?
Determination of theDetermination of the
Required Rate of ReturnRequired Rate of Return
44. 52
RRBWBW = RRff + ββj(RRMM - RRff)
RRBWBW = 6%6% + 1.21.2(10%10% - 6%6%)
RRBWBW = 10.8%10.8%
The required rate of return exceeds
the market rate of return as BW’s
beta exceeds the market beta (1.0).
BWs RequiredBWs Required
Rate of ReturnRate of Return
45. 53
Lisa Miller at BW is also attempting to
determine the intrinsic valueintrinsic value of the stock.
She is using the constant growth model.
Lisa estimates that the dividend next perioddividend next period
will be $0.50$0.50 and that BW will growgrow at a
constant rate of 5.8%5.8%. The stock is currently
selling for $15.
What is the intrinsic valueintrinsic value of the
stock? Is the stock overover or
underpricedunderpriced?
Determination of theDetermination of the
Intrinsic Value of BWIntrinsic Value of BW
46. 54
The stock is OVERVALUED as
the market price ($15) exceeds
the intrinsic valueintrinsic value ($10$10).
Determination of theDetermination of the
Intrinsic Value of BWIntrinsic Value of BW
$0.50$0.50
10.8%10.8% - 5.8%5.8%
IntrinsicIntrinsic
ValueValue
=
= $10$10
47. 55
Security Market LineSecurity Market Line
Systematic Risk (Beta)
RRff
RequiredReturnRequiredReturn
Direction of
Movement
Direction of
Movement
Stock YStock Y (Overpriced)
Stock X (Underpriced)
48. 56
Small-firm EffectSmall-firm Effect
Price / Earnings EffectPrice / Earnings Effect
January EffectJanuary Effect
These anomalies have presented
serious challenges to the CAPM
theory.
Determination of theDetermination of the
Required Rate of ReturnRequired Rate of Return