This document provides an overview of an investment course, including its description, outline, grading, and materials. The course aims to provide undergraduate students with fundamental and advanced knowledge of investment theory and guide them in practical investment analysis and valuation techniques. It covers topics such as portfolio theory, asset pricing models, stock and bond analysis, and valuation across 5 chapters. Students will be graded based on class participation, tests, assignments, and a final exam. Recommended course manuals include texts on essential investments and investment analysis/portfolio management.
Portfolio management UNIT FIVE BBS 4th year by Dilli BaralDilliBaral
Unit 4 discusses return and risk, while Unit 5 covers modern portfolio theory. Portfolio theory holds that investing in multiple assets lowers overall risk if profits from one asset can offset losses in others. An optimal portfolio minimizes risk for a given return or maximizes return for a given risk. It is selected from the efficient frontier of portfolios with the highest return per level of risk. The security market line models the relationship between risk and expected return for individual assets based on the capital asset pricing model.
- Portfolio theory deals with constructing portfolios to maximize return for a given level of risk.
- Diversification reduces unsystematic risk but not all risk. Efficient portfolios provide the lowest risk for a given return.
- Beta measures the systematic risk of an asset relative to the market. A beta of 1 means the asset has the same volatility as the market.
The document provides an overview of key concepts related to expected returns, risk, and the security market line. It defines expected returns and how they differ from realized returns. It also discusses diversification and how it relates to systematic and unsystematic risk. The security market line models the relationship between risk and return, with the slope representing the market risk premium. The capital asset pricing model uses an asset's beta to determine its expected return based on the risk-free rate and market risk premium.
This document discusses risk and return concepts in finance. It defines types of risk like stand-alone risk and portfolio risk. It shows how to calculate the expected return and standard deviation of individual investments and portfolios. Lower risk can be achieved through diversification since unique investment risks offset each other in a portfolio. The Capital Asset Pricing Model suggests investors should only be compensated for systematic market risk rather than risks that can be diversified away. Beta is introduced as a measure of a security's non-diversifiable market risk relative to the overall market.
The document discusses key concepts related to risk and return, including:
1) It defines risk as the uncertainty surrounding investment returns, and return as the total gain or loss on an investment. It also defines a portfolio as a group of assets.
2) It explains that diversification across different asset classes can reduce overall risk without significantly reducing expected returns, by offsetting losses and gains across assets.
3) It introduces the Capital Asset Pricing Model (CAPM), which defines the relationship between an asset's expected return and its systematic risk (beta). The CAPM states that the expected return is equal to the risk-free rate plus the asset's beta multiplied by the market risk premium.
This document provides an overview of key concepts in investment analysis and portfolio management. It discusses what constitutes an investment, factors that influence required rates of return such as time value of money, inflation, and risk. It also covers measures of historical and expected rates of return, risk of expected returns using variance and standard deviation, and the three determinants of required rates of return - the real risk-free rate, expected inflation, and risk premium.
Capital Asset Pricing Model (CAPM) was introduced in 1964 as an extension of the Modern Portfolio Theory which seeks to explore the diverse ways by which investors can construct investment portfolios through means that can possibly minimize risk levels and at the same time ensure maximization of returns.
Portfolio management UNIT FIVE BBS 4th year by Dilli BaralDilliBaral
Unit 4 discusses return and risk, while Unit 5 covers modern portfolio theory. Portfolio theory holds that investing in multiple assets lowers overall risk if profits from one asset can offset losses in others. An optimal portfolio minimizes risk for a given return or maximizes return for a given risk. It is selected from the efficient frontier of portfolios with the highest return per level of risk. The security market line models the relationship between risk and expected return for individual assets based on the capital asset pricing model.
- Portfolio theory deals with constructing portfolios to maximize return for a given level of risk.
- Diversification reduces unsystematic risk but not all risk. Efficient portfolios provide the lowest risk for a given return.
- Beta measures the systematic risk of an asset relative to the market. A beta of 1 means the asset has the same volatility as the market.
The document provides an overview of key concepts related to expected returns, risk, and the security market line. It defines expected returns and how they differ from realized returns. It also discusses diversification and how it relates to systematic and unsystematic risk. The security market line models the relationship between risk and return, with the slope representing the market risk premium. The capital asset pricing model uses an asset's beta to determine its expected return based on the risk-free rate and market risk premium.
This document discusses risk and return concepts in finance. It defines types of risk like stand-alone risk and portfolio risk. It shows how to calculate the expected return and standard deviation of individual investments and portfolios. Lower risk can be achieved through diversification since unique investment risks offset each other in a portfolio. The Capital Asset Pricing Model suggests investors should only be compensated for systematic market risk rather than risks that can be diversified away. Beta is introduced as a measure of a security's non-diversifiable market risk relative to the overall market.
The document discusses key concepts related to risk and return, including:
1) It defines risk as the uncertainty surrounding investment returns, and return as the total gain or loss on an investment. It also defines a portfolio as a group of assets.
2) It explains that diversification across different asset classes can reduce overall risk without significantly reducing expected returns, by offsetting losses and gains across assets.
3) It introduces the Capital Asset Pricing Model (CAPM), which defines the relationship between an asset's expected return and its systematic risk (beta). The CAPM states that the expected return is equal to the risk-free rate plus the asset's beta multiplied by the market risk premium.
This document provides an overview of key concepts in investment analysis and portfolio management. It discusses what constitutes an investment, factors that influence required rates of return such as time value of money, inflation, and risk. It also covers measures of historical and expected rates of return, risk of expected returns using variance and standard deviation, and the three determinants of required rates of return - the real risk-free rate, expected inflation, and risk premium.
Capital Asset Pricing Model (CAPM) was introduced in 1964 as an extension of the Modern Portfolio Theory which seeks to explore the diverse ways by which investors can construct investment portfolios through means that can possibly minimize risk levels and at the same time ensure maximization of returns.
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
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 document summarizes key concepts from Chapter 6 on risk, return, and the Capital Asset Pricing Model (CAPM). It defines types of investment risk and return, and how to calculate expected returns and standard deviation of returns for individual assets and portfolios. It introduces the Security Market Line (SML) as part of CAPM, which relates an asset's expected return to its beta coefficient measuring non-diversifiable risk relative to the market. The document provides examples of calculating betas and using the SML to determine if assets are under or overvalued based on their expected versus required returns.
1. The document outlines a presentation on constructing high quality MPF portfolios. It discusses measures of fund performance like return and risk, and how to assess fund risk.
2. It also covers portfolio construction using two and three fund portfolios, how to adjust risk and return using parking funds, and estimating portfolio return and risk based on the funds' attributes.
3. Monte Carlo simulation and behavioral finance concepts in relation to portfolio decisions are also summarized, such as status quo bias, loss aversion, and overconfidence.
The document discusses several assumptions of portfolio theory models including CAPM and APT. It assumes investors have homogeneous expectations, are risk averse utility maximizers, and operate in a environment of perfect competition with no transaction costs. The key aspects of CAPM discussed are the efficient frontier and relationship between risk and return. APT relaxes some CAPM assumptions and focuses on factor sensitivities driving returns rather than just beta. Arbitrage pricing looks for riskless profit opportunities by making small adjustments to portfolio weights.
This document discusses various methods for calculating rates of return on investments including holding period return (HPR), arithmetic average return, geometric average return, dollar-weighted average return, and annualized returns. It provides examples of calculating these different rates of return for stocks, mutual funds, and other investments. The document also covers risk measures like standard deviation, variance, value at risk (VaR), scenario analysis, and how diversifying a portfolio across multiple assets with differing correlations can reduce overall portfolio risk for a given expected return.
1. The document discusses portfolio selection using the Markowitz model.
2. The Markowitz model aims to find the optimal portfolio, which provides the highest return and lowest risk. It does this by analyzing different combinations of securities to identify efficient portfolios.
3. The document provides details on the tools and steps used in the Markowitz model for portfolio selection, including analyzing expected returns, variance, standard deviation, and coefficients of correlation between securities.
Investing Concept Of Risk And Return PowerPoint Presentation Slides SlideTeam
Every organization needs to adapt to the ever-changing business environment. Sensing this need, we have come up with these content-ready change management PowerPoint presentation slides. These change management PPT templates will help you deal with any kind of an organizational change. Be it with people, goals or processes. The business solutions incorporated here will help you identify the organizational structure, create vision for change, implement strategies, identify resistance and risk, manage cost of change, get feedback and evaluation, and much more. With the help of various change management tools and techniques illustrated in this presentation design, you can achieve the desired business outcomes. This business transition PowerPoint design also covers certain related topics such as change model, transformation strategy, change readiness, change control, project management and business process. By implementing the change control methods mentioned in the presentation, you will be able to have a smooth transition in an organization. So, without waiting much, download our extensively researched change management framework presentation. With our Change Management Presentation slides, understand the need for change and plan to go through it without any hassles.
This document discusses risk and return, including key concepts such as:
- Risk is defined as the potential variability in investment returns, while return refers to the total gain or loss on an investment.
- There is typically a relationship between higher risk and higher potential returns.
- Standard deviation and beta are common measures used to quantify investment risk. Beta specifically measures the volatility of a security compared to the overall market.
- Portfolio risk can be reduced through diversification among assets with low or negative correlations. However, some systematic market risk cannot be diversified away.
- The Capital Asset Pricing Model (CAPM) describes the expected return of an asset based on its beta and the expected market return.
Risk and Return Analysis .ppt By Sumon SheikhSumon Sheikh
Risk and return analysis presentation with suitable examples. A perfect class-presentation file.
Prepared by Sumon Sheikh, BBA Student, majoring Accounting and Information Systems at Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
This document discusses risk and rates of return, including different types of risk, portfolio risk, and the Capital Asset Pricing Model (CAPM). It defines key risk concepts like standard deviation, beta, and diversification. Standard deviation measures total risk while beta specifically measures non-diversifiable or systematic risk. Diversification reduces unsystematic risk. The CAPM suggests investors should be compensated only for systematic risk and that the market portfolio provides maximum risk reduction through diversification.
This document discusses concepts of risk and return in investment. It defines return as the basic motivating force and principal reward in investment. There are two types of return - realized return which has been earned, and expected return which is anticipated to be earned in the future. Risk refers to the possibility that the actual return may differ from the expected return. There are two main types of risk - systematic/non-diversifiable risk due to overall market factors, and unsystematic/diversifiable risk that is firm-specific. Required return from an investment is determined by the risk-free rate, expected inflation rate, and risk premium. Various measures like variance and standard deviation are used to quantify investment risk.
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).
Risk And Return In Financial Management PowerPoint Presentation SlidesSlideTeam
Analyze investment risk and profitability with this professionally designed Risk and Return in Financial Management PowerPoint Presentation Slides. The content ready portfolio risk-return trade-off PowerPoint compete deck comprises of PPT slides such as risk and return of stock bonds, and T-bills, investment strategies of predefined portfolios, risk and return of portfolio manager, measuring stock volatility proportionate, portfolio return analysis, calculating asset beta, portfolio value at risk, ranking the passive income streams impact to name a few. Explain the relationship between risk on investing in the financial market with potential return using portfolio risk analysis PPT slides. Utilize the visually appealing risk-reward relationship presentation design to structure your financial presentation. Furthermore, portfolio risk-return in security analysis PPT visuals are completely customizable. You can add or delete the content if needed. Download this visually appealing security analysis and portfolio management presentation deck to manage investment risk. Our Risk And Return In Financial Management PowerPoint Presentation Slides ensure you feel joyous. You will find the inspiration you desire.
This document discusses key concepts in portfolio theory, including how to calculate investment returns over single and multiple periods. It defines holding period return (HPR) to measure single period returns and arithmetic average, geometric average, and dollar-weighted return to measure returns over many periods. It also explains how to calculate the expected return, variance, and standard deviation of investments to quantify the expected reward and risk.
This document discusses risk and return in investments over time. It provides historical returns for various investments from 1995-2004 such as the S&P 500, GM stocks, and Treasury bills. It also discusses the relationship between risk and return, showing that higher volatility investments like small stocks have provided higher average returns. Diversification reduces unique "diversifiable" risk but not systematic market risk, which requires a risk premium.
Risk and return are key concepts in finance. Return represents the total gain or loss on an investment. Risk is the potential variability in future cash flows and the possibility that actual returns will differ from expected returns. Expected return is the return an investor expects to earn on an asset, while required return is the return an investor requires given an asset's risk. Standard deviation and coefficient of variation are common measures of risk. A portfolio combines multiple assets to reduce overall risk through diversification. The two main types of risk are unsystematic (company-specific) risk, which can be diversified away, and systematic (market) risk, which cannot. Beta is used to measure an asset's systematic risk relative to the market.
Bba 2204 fin mgt week 8 risk and returnStephen Ong
This document discusses risk and return in financial management. It provides learning goals related to understanding risk, return, and risk preferences. It defines risk as the uncertainty of returns from an investment and return as the total gain from an investment. It discusses measuring the risk of single assets using scenarios, probabilities, standard deviation, and the coefficient of variation. It also introduces the concept of measuring the risk and return of a portfolio by considering the correlation between assets.
The document discusses different types of risk in capital budgeting projects including project-specific, competitive, industry, and market risks. It also discusses three perspectives of risk: standalone, firm, and market risk. It then explains three approaches to analyzing risk: sensitivity analysis, scenario analysis, and decision tree analysis. Finally, it discusses how to incorporate project risk into capital budgeting decisions such as using a risk-adjusted discount rate or certainty equivalent method.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
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 document summarizes key concepts from Chapter 6 on risk, return, and the Capital Asset Pricing Model (CAPM). It defines types of investment risk and return, and how to calculate expected returns and standard deviation of returns for individual assets and portfolios. It introduces the Security Market Line (SML) as part of CAPM, which relates an asset's expected return to its beta coefficient measuring non-diversifiable risk relative to the market. The document provides examples of calculating betas and using the SML to determine if assets are under or overvalued based on their expected versus required returns.
1. The document outlines a presentation on constructing high quality MPF portfolios. It discusses measures of fund performance like return and risk, and how to assess fund risk.
2. It also covers portfolio construction using two and three fund portfolios, how to adjust risk and return using parking funds, and estimating portfolio return and risk based on the funds' attributes.
3. Monte Carlo simulation and behavioral finance concepts in relation to portfolio decisions are also summarized, such as status quo bias, loss aversion, and overconfidence.
The document discusses several assumptions of portfolio theory models including CAPM and APT. It assumes investors have homogeneous expectations, are risk averse utility maximizers, and operate in a environment of perfect competition with no transaction costs. The key aspects of CAPM discussed are the efficient frontier and relationship between risk and return. APT relaxes some CAPM assumptions and focuses on factor sensitivities driving returns rather than just beta. Arbitrage pricing looks for riskless profit opportunities by making small adjustments to portfolio weights.
This document discusses various methods for calculating rates of return on investments including holding period return (HPR), arithmetic average return, geometric average return, dollar-weighted average return, and annualized returns. It provides examples of calculating these different rates of return for stocks, mutual funds, and other investments. The document also covers risk measures like standard deviation, variance, value at risk (VaR), scenario analysis, and how diversifying a portfolio across multiple assets with differing correlations can reduce overall portfolio risk for a given expected return.
1. The document discusses portfolio selection using the Markowitz model.
2. The Markowitz model aims to find the optimal portfolio, which provides the highest return and lowest risk. It does this by analyzing different combinations of securities to identify efficient portfolios.
3. The document provides details on the tools and steps used in the Markowitz model for portfolio selection, including analyzing expected returns, variance, standard deviation, and coefficients of correlation between securities.
Investing Concept Of Risk And Return PowerPoint Presentation Slides SlideTeam
Every organization needs to adapt to the ever-changing business environment. Sensing this need, we have come up with these content-ready change management PowerPoint presentation slides. These change management PPT templates will help you deal with any kind of an organizational change. Be it with people, goals or processes. The business solutions incorporated here will help you identify the organizational structure, create vision for change, implement strategies, identify resistance and risk, manage cost of change, get feedback and evaluation, and much more. With the help of various change management tools and techniques illustrated in this presentation design, you can achieve the desired business outcomes. This business transition PowerPoint design also covers certain related topics such as change model, transformation strategy, change readiness, change control, project management and business process. By implementing the change control methods mentioned in the presentation, you will be able to have a smooth transition in an organization. So, without waiting much, download our extensively researched change management framework presentation. With our Change Management Presentation slides, understand the need for change and plan to go through it without any hassles.
This document discusses risk and return, including key concepts such as:
- Risk is defined as the potential variability in investment returns, while return refers to the total gain or loss on an investment.
- There is typically a relationship between higher risk and higher potential returns.
- Standard deviation and beta are common measures used to quantify investment risk. Beta specifically measures the volatility of a security compared to the overall market.
- Portfolio risk can be reduced through diversification among assets with low or negative correlations. However, some systematic market risk cannot be diversified away.
- The Capital Asset Pricing Model (CAPM) describes the expected return of an asset based on its beta and the expected market return.
Risk and Return Analysis .ppt By Sumon SheikhSumon Sheikh
Risk and return analysis presentation with suitable examples. A perfect class-presentation file.
Prepared by Sumon Sheikh, BBA Student, majoring Accounting and Information Systems at Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
This document discusses risk and rates of return, including different types of risk, portfolio risk, and the Capital Asset Pricing Model (CAPM). It defines key risk concepts like standard deviation, beta, and diversification. Standard deviation measures total risk while beta specifically measures non-diversifiable or systematic risk. Diversification reduces unsystematic risk. The CAPM suggests investors should be compensated only for systematic risk and that the market portfolio provides maximum risk reduction through diversification.
This document discusses concepts of risk and return in investment. It defines return as the basic motivating force and principal reward in investment. There are two types of return - realized return which has been earned, and expected return which is anticipated to be earned in the future. Risk refers to the possibility that the actual return may differ from the expected return. There are two main types of risk - systematic/non-diversifiable risk due to overall market factors, and unsystematic/diversifiable risk that is firm-specific. Required return from an investment is determined by the risk-free rate, expected inflation rate, and risk premium. Various measures like variance and standard deviation are used to quantify investment risk.
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).
Risk And Return In Financial Management PowerPoint Presentation SlidesSlideTeam
Analyze investment risk and profitability with this professionally designed Risk and Return in Financial Management PowerPoint Presentation Slides. The content ready portfolio risk-return trade-off PowerPoint compete deck comprises of PPT slides such as risk and return of stock bonds, and T-bills, investment strategies of predefined portfolios, risk and return of portfolio manager, measuring stock volatility proportionate, portfolio return analysis, calculating asset beta, portfolio value at risk, ranking the passive income streams impact to name a few. Explain the relationship between risk on investing in the financial market with potential return using portfolio risk analysis PPT slides. Utilize the visually appealing risk-reward relationship presentation design to structure your financial presentation. Furthermore, portfolio risk-return in security analysis PPT visuals are completely customizable. You can add or delete the content if needed. Download this visually appealing security analysis and portfolio management presentation deck to manage investment risk. Our Risk And Return In Financial Management PowerPoint Presentation Slides ensure you feel joyous. You will find the inspiration you desire.
This document discusses key concepts in portfolio theory, including how to calculate investment returns over single and multiple periods. It defines holding period return (HPR) to measure single period returns and arithmetic average, geometric average, and dollar-weighted return to measure returns over many periods. It also explains how to calculate the expected return, variance, and standard deviation of investments to quantify the expected reward and risk.
This document discusses risk and return in investments over time. It provides historical returns for various investments from 1995-2004 such as the S&P 500, GM stocks, and Treasury bills. It also discusses the relationship between risk and return, showing that higher volatility investments like small stocks have provided higher average returns. Diversification reduces unique "diversifiable" risk but not systematic market risk, which requires a risk premium.
Risk and return are key concepts in finance. Return represents the total gain or loss on an investment. Risk is the potential variability in future cash flows and the possibility that actual returns will differ from expected returns. Expected return is the return an investor expects to earn on an asset, while required return is the return an investor requires given an asset's risk. Standard deviation and coefficient of variation are common measures of risk. A portfolio combines multiple assets to reduce overall risk through diversification. The two main types of risk are unsystematic (company-specific) risk, which can be diversified away, and systematic (market) risk, which cannot. Beta is used to measure an asset's systematic risk relative to the market.
Bba 2204 fin mgt week 8 risk and returnStephen Ong
This document discusses risk and return in financial management. It provides learning goals related to understanding risk, return, and risk preferences. It defines risk as the uncertainty of returns from an investment and return as the total gain from an investment. It discusses measuring the risk of single assets using scenarios, probabilities, standard deviation, and the coefficient of variation. It also introduces the concept of measuring the risk and return of a portfolio by considering the correlation between assets.
The document discusses different types of risk in capital budgeting projects including project-specific, competitive, industry, and market risks. It also discusses three perspectives of risk: standalone, firm, and market risk. It then explains three approaches to analyzing risk: sensitivity analysis, scenario analysis, and decision tree analysis. Finally, it discusses how to incorporate project risk into capital budgeting decisions such as using a risk-adjusted discount rate or certainty equivalent method.
Monthly Market Risk Update: June 2024 [SlideShare]Commonwealth
Markets rallied in May, with all three major U.S. equity indices up for the month, said Sam Millette, director of fixed income, in his latest Market Risk Update.
For more market updates, subscribe to The Independent Market Observer at https://blog.commonwealth.com/independent-market-observer.
Explore the world of investments with an in-depth comparison of the stock market and real estate. Understand their fundamentals, risks, returns, and diversification strategies to make informed financial decisions that align with your goals.
Madhya Pradesh, the "Heart of India," boasts a rich tapestry of culture and heritage, from ancient dynasties to modern developments. Explore its land records, historical landmarks, and vibrant traditions. From agricultural expanses to urban growth, Madhya Pradesh offers a unique blend of the ancient and modern.
KYC Compliance: A Cornerstone of Global Crypto Regulatory FrameworksAny kyc Account
This presentation explores the pivotal role of KYC compliance in shaping and enforcing global regulations within the dynamic landscape of cryptocurrencies. Dive into the intricate connection between KYC practices and the evolving legal frameworks governing the crypto industry.
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
How to Invest in Cryptocurrency for Beginners: A Complete GuideDaniel
Cryptocurrency is digital money that operates independently of a central authority, utilizing cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies are decentralized and typically operate on a technology called blockchain. Each cryptocurrency transaction is recorded on a public ledger, ensuring transparency and security.
Cryptocurrencies can be used for various purposes, including online purchases, investment opportunities, and as a means of transferring value globally without the need for intermediaries like banks.
What Lessons Can New Investors Learn from Newman Leech’s Success?Newman Leech
Newman Leech's success in the real estate industry is based on key lessons and principles, offering practical advice for new investors and serving as a blueprint for building a successful career.
Calculation of compliance cost: Veterinary and sanitary control of aquatic bi...Alexander Belyaev
Calculation of compliance cost in the fishing industry of Russia after extended SCM model (Veterinary and sanitary control of aquatic biological resources (ABR) - Preparation of documents, passing expertise)
13 Jun 24 ILC Retirement Income Summit - slides.pptxILC- UK
ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.
Contributors included:
Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board
Navigating Your Financial Future: Comprehensive Planning with Mike Baumannmikebaumannfinancial
Learn how financial planner Mike Baumann helps individuals and families articulate their financial aspirations and develop tailored plans. This presentation delves into budgeting, investment strategies, retirement planning, tax optimization, and the importance of ongoing plan adjustments.
2. Course description
Number of hours: 45 (3 credits)
Level: Undergraduate
Aims:
Provide students with a fundamental and advanced knowledge
of investment theory
To guide students in the practical application of investment
analysis
To demonstrate to students the techniques of financial
valuation
2
3. Course outline
• Chapter 1: Introduction to Investment
• Chapter 2: Portfolio theory
• Chapter 3: Asset pricing models
• Chapter 4: Stock analysis and valuation
• Chapter 5: Bond analysis and valuation
3
4. Grading
Class Preparation/Participation: 20%
Regular attendance 5%
Participation in class 5%
Two short tests 10%
Test 1: Chapters 1-2
Test 2: Chapters 3-5
Assignment and presentation in class 20%
Final exam 60%
4
5. 5
Materials and manuals
Manuals:
Bodie, Z., Kane, A., Marcus, A. J., Essentials of Investments, Fifth
Edition
Reilly, F. K., Brown, K. C., Investment Analysis and Portfolio
Management, 7th Edition, Thomson - South Western, 2003.
Chapter 1 – 2, 6 – 16, 19
7. Chapter 1:
Intro to Investment
1. Investment definition
2. Financial assets vs Real assets
3. Major classes of financial assets
4. Investment process
5. Measuring the return and risk of an investment
6. Utility, Risk Aversion and Portfolio selection
7
8. 1. Investment Definition
An investment is the commitment of current resources in
the expectation of deriving greater resources in the future.
Investment example:
Buying a stock/bond
Putting money in a bank account
Study for a college degree
8
9. 1. Investment Definition
The nature of financial investment:
Reduced current consumption
Planned later consumption
An investment will compensate the investor for:
The time the funds are committed
The risk of the investment
Inflation
9
10. 2. Real Assets versus Financial Assets
Real Assets
Assets used to produce goods and services: Buildings, land,
equipment, knowledge…
Real assets generate net income to the economy
Financial Assets
Claims to the income generated by real assets: stocks, bonds…
Define the allocation of income or wealth among investors
10
11. Debt securities: Money market instruments, Bonds
Equity security: common stock, preferred stock
Derivatives: Options, Futures, Forward, Warrants.
Alternative investments: Real estate, artwork, hedge funds,
venture capital, crypto currencies, etc.
3. Major Classes of Financial Assets
11
12. 4. Investment Process
Portfolio: an investor’s collection of investment assets.
Two types of decisions in constructing the portfolio:
Asset allocation: Allocation of an investment portfolio across
broad asset classes
Security selection: Choice of specific securities within each asset
class
Security analysis: Analysis of the value of securities
12
13. 5. Measuring Return and Risk
5.1. Measuring return
Holding-period Return (HPR)
Arithmetic Mean (AM) vs. Geometric Mean (GM)
Risk and Expected return
5.2. Measuring risk
Measuring risk using variance and standard deviation.
5.3. Measuring risk and return of a portfolio
The return of a portfolio
Correlation and portfolio risk.
13
14. 5.1. Measuring Return
Return:
Profit/loss on an investment.
Can be expressed in $$$ or in percentage (%).
Rate of return = return expressed in %.
From now on, “rate of return” will be simply called “return”
(Unless specified otherwise).
14
16. 5.1. Measuring Return
Example 5.1
You bought a share of Vingroup for VND 50,000 on 01/09/2017. And
then you sold it for VND 75,000 after 1 year. What is the HPR on
your investment?
𝐻𝑃𝑅 =
75,000
50,000
− 1 = 0.5 = 50%
16
17. 5.1. Measuring Return
Example 5.2
You bought a share of Hoa Phat for VND 40,000 on 01/09/2017 and
sold it 1.25 year (15 months) later for VND 75,000. What is the HPR
on your investment?
𝐻𝑃𝑅 =
75,000
40,000
− 1 = 0.875 𝑜𝑟 87.5%
Which investment performed better?
17
18. 5.1. Measuring Return
Holding period: day, week, month, year, etc.
How to compare HPRs with different holding periods?
How to measure the average return over multiple periods?
18
19. 5.1. Arithmetic Mean vs. Geometric Mean
Arithmetic Mean:
AM =
HPRi
n
n
i=1
Geometric Mean
GM = 1 + HPRi
n
i=1
1
n
− 1
19
20. 5.1. Arithmetic Mean vs. Geometric Mean
Example 5.3: Mutual fund DUE has the following returns in the last 4
years as follow: 35%, -25%, 20%, -10%.
What is the mutual fund’s AM?
𝐴𝑀 =
35% − 25% + 20% − 10%
4
= 5%
What is the mutual fund’s GM?
𝐺𝑀 = 1 + 0.35 1 − 0.25 1 + 0.2 1 − 0.1
1
4 − 1
𝐺𝑀 = 2.26%
20
21. 5.1. Arithmetic Mean vs. Geometric Mean
If an investor invests in the DUE fund, what return should
he expect to earn next year?
Which number is better at representing the actual
return/performance of the DUE fund for the last 4 years?
Arithmetic Mean or Geometric Mean?
21
22. 5.1. Arithmetic vs Geometric Mean
Example 5.4
AM = [1+(–0.50)] /2 = 0.5/2 = 0.25 = 25%
GM = (2 × 0.5)1/2
– 1 = (= (1)1/2
– 1 = 1 – 1 = 0%
22
23. 5.1. Expected return and Risk
Example 5.5
Risk is uncertainty regarding the outcome of an investment
W = 100
W1 = 150 Profit = 50
W2 = 80 Profit = -20
1-p = .4
23
24. Risky Investment with three possible returns
5.1. Expected return and Risk
24
25. The return that investment is expected to earn on average.
𝐸 𝑅𝐴 = [𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦
𝑛
𝑖=1
𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛 × 𝑃𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑅𝑒𝑡𝑢𝑟𝑛]
𝐸 𝑅𝐴 = 𝑝𝑖𝑅𝑖
𝑛
𝑖=1
𝑤ℎ𝑒𝑟𝑒 𝑝𝑖 is the probability of scenario i,
𝑅𝑖 is the return of investment A in scenario i.
5.1. Expected Return
25
26. Probability
Pi
Recession 0.15 -15%
Normal 0.60 5%
Boom 0.15 10%
Strong Boom 0.10 20%
Expected
Return
4.25%
Scenario Return
5.1. Expected Return
Example 5.6: Calculate the expected return of stock ABC
given the following data
26
28. Measuring the risk of an individual investment
Var RA = σA
2
= pi Ri − E RA
2
n
i=1
𝑝𝑖: The probability of scenario i.
𝑅𝑖: The return of investment A in scenario i.
𝐸(𝑅𝐴): The expected return of investment A.
5.2. Risk
28
29. Standard deviation
𝜎𝐴 = 𝑉𝑎𝑟(𝑅𝐴) = pi Ri − E RA
2
n
i=1
Standard deviation is the square root of the variance
Measure the volatility of an investment.
The higher the 𝜎, the riskier (more volatile) the investment.
Risk-free asset (F): 𝜎𝐹= 0
5.2. Risk
29
30. Possible Rate Expected
of Return (Ri) Return E(Ri)
-15% 0.15 4.3% -0.19 0.0371 0.005558
5% 0.60 4.3% 0.01 0.0001 0.000034
10% 0.15 4.3% 0.06 0.0033 0.000496
20% 0.10 4.3% 0.16 0.0248 0.002481
Variance 0.008569
Pi Ri - E(Ri) [Ri - E(Ri)]
2
[Ri - E(Ri)]
2
Pi
5.2. Risk
Example 5.6: 𝜎 = 0.008569 = 9.26%
30
31. 31
Using historical rate of return
Calculate return and risk over time:
𝐸 𝑅𝐴 =
1
𝑛
𝑅𝑖
𝑛
𝑖=1 ,
𝜎𝐴 =
1
𝑛−1
𝑅𝑖 − 𝐸 𝑅𝐴
2
𝑛
𝑖=1 ,
where n is the number of observations,
𝑅𝑖 is return during the period i.
32. 5.3. Return and Risk of a Portfolio
Example 5.7: Portfolio P is made up of 3 securities (A, B, and C)
with the following weights. Calculate the return on P when the
economy is booming?
A 0.50 11.50%
B 0.20 5.00%
C 0.30 24.00%
P 1.00 13.95%
Return when
Boom
Security Weight
32
33. Return on a portfolio:
RP = wiRi
n
i=1
where wi is the weight of the asset i in the portfolio,
Ri is the return on asset i.
The expected return on a portfolio: E RP = wiE Ri
n
i=1
5.3.1. Return on a Portfolio
33
34. 5.3.1. Return of a Portfolio
Example 5.8: Calculate the expected return of Portfolio P using
the following data
Security Weight Boom Normal Recession E(R)
0.3 0.5 0.2
A 0.50 11.5% 5.0% -4.0% 5.2%
B 0.20 5.0% 15.0% 18.0% 12.6%
C 0.30 24.0% 13.0% -5.0% 12.7%
P 14.0% 9.4% 0.1% 8.9%
34
35. 5.3.1. Return of a Portfolio
Example 5.9: Calculate the expected return, the variance and
standard deviation of portfolio P using the following data.
0.5 0.2 0.3
Scenario Probability A B C P
Boom 0.3 11.5% 5.0% 24.0% 14.0%
Normal 0.5 5.0% 15.0% 13.0% 9.4%
Recession 0.2 -4.0% 18.0% -5.0% 0.1%
Expected
Return
5.2% 12.6% 12.7% 8.9%
Portfolio Weight
35
36. 5.3.2. Risk of a Portfolio
The variance and standard deviation of portfolio P
Scenario Probability Return R - E(R) [R - E(R)]^2
Boom 0.30 14.0% 5.1% 0.002550
Normal 0.50 9.4% 0.5% 0.000025
Recession 0.20 0.1% -8.8% 0.007744
8.9% Variance 0.002326
Stdev 4.82%
Expected Return
36
37. 5.3.2. Risk of a Portfolio
Is the risk of a portfolio the average/the sum of the risk of
individual assets in the portfolio?
We’ll need to know the covariance/correlation between
assets’ returns in the portfolio to calculate the portfolio
variance and standard deviation.
cov RA, RB = σA,B = pi R𝐴,i − E RA [RB,i−E RB ]
n
i=1
A measure of the degree to which two variables “move
together” relative to their individual mean values over time
37
39. Security Weight Boom Normal Recession E(R) σ
0.3 0.5 0.2
A 0.50 11.5% 5.0% -4.0% 5.2% 5.37%
B 0.20 5.0% 15.0% 18.0% 12.6% 5.10%
C 0.30 24.0% 13.0% -5.0% 12.7% 10.05%
P 14.0% 9.4% 0.1% 8.9% 4.82%
5.3.2. Risk of a Portfolio
Example 5.9: The standard deviation of the portfolio is smaller
than each asset’s standard deviation in this case. Why?
39
40. The negative covariance between B and A, C helps lower
the volatility of the portfolio
CovAB = − 0.002454
CovBC = − 0.004452
CovAC = 0.005389
5.3.2. Risk of a Portfolio
40
41. Coefficient of Correlation:
The correlation coefficient is obtained by standardizing
(dividing) the covariance by the product of the individual
standard deviations
𝜌𝑖𝑗 =
𝐶𝑜𝑣𝑖𝑗
𝜎𝑖𝜎𝑗
𝜌𝑖𝑗 measures how strong the returns of i and j move
together or in opposite direction.
5.3.2. Risk of a Portfolio
41
42. Covij tells us whether the returns of asset i and j tend to
move in the same direction or in opposite direction
But Covij doesn’t tell whether they move together strongly
or not.
𝝆𝒊𝒋 measures the strength of the co-movements of the
returns of i and j.
−𝟏 ≤ 𝝆𝒊𝒋 ≤ 𝟏
5.3.2. Risk of a Portfolio
42
43. 𝜌𝑖𝑗 = 1: perfect positive correlation. This means that
returns for the two assets move together in a completely
linear manner
𝜌𝑖𝑗 = −1 : perfect negative correlation. This means that the
returns for two assets have the same percentage
movement, but in opposite directions
𝜌𝑖𝑗 = 0: the movements of the rates of return of the two
assets are not correlated
5.3.2. Risk of a Portfolio
43
44. Standard deviation of a portfolio
σP = wi
2
σi
2
+ wiwjCovij
n
j=1
n
i=1
n
i=1
For a portfolio with 2 assets A and B:
𝜎𝑃 = 𝑤𝐴
2
𝜎𝐴
2
+ 𝑤𝐵
2
𝜎𝐵
2
+ 2𝑤𝐴𝑤𝐵𝐶𝑜𝑣𝐴𝐵
5.3.2. Risk of a Portfolio
44
45. Standard deviation of a portfolio
σP = wi
2
σi
2
+ wiwj𝜎𝑖𝜎𝑗𝜌ij
n
j=1
n
i=1
n
i=1
For a portfolio with 2 assets A and B:
𝜎𝑃 = 𝑤𝐴
2
𝜎𝐴
2
+ 𝑤𝐵
2
𝜎𝐵
2
+ 2𝑤𝐴𝑤𝐵𝜎𝐴𝜎𝐵𝜌𝐴𝐵
5.3.2. Risk of a Portfolio
45
46. Example 5.11
Calculate the expected return on the portfolio (P).
Calculate the SD of the portfolio (P) if the correlation
between the two assets is: +1, 0.5, 0, -0.5, -1.
5.3.2. Risk of a Portfolio
46
49. 5.3.2. Risk of a Portfolio
Negative correlation reduces portfolio risk
Combining two assets with -1.0 correlation reduces the
portfolio standard deviation to zero only when individual
standard deviations are equal
49
50. 5. Return and Risk: Further questions
Where does risk come from?
What is risk premium?
The relationship between risk and return?
What type of risk should investors be compensated?
50
51. 6. Utility, Risk aversion, and Portfolio selection
Utility function: Measures the satisfaction that we can derive
from the investment outcomes (wealth).
Assume that each investor can assign a Utility value to each
of the portfolio he/she can choose.
Higher utility portfolio is better.
Given an investor’s preferences (tastes), the best portfolio
is the portfolio that gives the highest utility he can choose
from.
51
52. 6. Utility, Risk aversion, and Portfolio selection
Investors’ preferences:
Like Expected Return
Risk Averse = Dislike Risk
Investor’s utility function:
Increasing in Expected Return
Decreasing in Risk
Risk is measured by standard deviation or variance.
52
53. 6. Utility, Risk aversion, and Portfolio selection
Investor’s Utility function:
U = E RP − 0.005AσP
2
𝐸(𝑅𝑃): Expected return of portfolio P.
𝜎𝑃: standard deviation of portfolio P.
A: The degree of risk aversion of the investor. Therefore, different
investors have different A, or different levels of risk aversion.
Higher A means the investor is more risk-averse (dislike
risk more strongly).
53
55. 6. Utility, Risk aversion, and Portfolio selection
Dominance Principle:
Given a level of expected return:
Investors prefer portfolios with Lower Risk (lower standard
deviation).
Give a level of standard deviation:
Investors prefer portfolios with Higher Expected Return.
Each portfolio is dominated by all the portfolios lies in the
“Northwest” of itself.
55
56. 6. Utility, Risk aversion, and Portfolio selection
2 dominates 1; has a higher return
2 dominates 3; has a lower risk
4 dominates 3; has a higher return
All Red portfolios dominates 3.
1
2 3
4
𝑬 𝑹𝑷
𝝈𝑷
56
57. 57
Utility and Indifference Curves
Represent an investor’s willingness to trade-off return and
risk.
Example
Exp Ret St Deviation A U=E ( r ) - .005As2
10 20.0 4 2
15 25.5 4 2
20 30.0 4 2
25 33.9 4 2
58. Indifference curve:
The set of all portfolios that have the same level of utility.
6. Utility, Risk aversion, and Portfolio selection
E(R)
σ
Increasing Utility
F
A
B
C
D
E
A and B has the same utility.
C and D has the same utility.
E and F has the same utility.
𝑈 𝐴 > 𝑈 𝐷 > 𝑈(𝐸)
58
59. High Risk Aversion
Low Risk Aversion
E(R)
σ
6. Utility, Risk aversion, and Portfolio selection
59
60. 6. Utility, Risk aversion, and Portfolio selection
Portfolio selection:
How does an investor choose the best portfolio to invest in?
Given a set of portfolios that an investor can invest in,
the investor should choose the portfolio that provides
the investor with the highest utility.
60
61. Exercise
1. Calculate the expected return and standard deviation of
the following portfolio
Portfolio 1:
Security Weight Boom Normal Recession E(R) σ
0.2 0.6 0.2
A 0.30 14.0% 8.0% -8.0% 6.0% 7.38%
B 0.70 4.0% 12.0% 10.0% 10.0% 3.10%
P 7.0% 10.8% 4.6% 8.8% 2.56%
61