CH06RiskandRatesofReturn(财务管理,英文版).pptx

CHAPTER 6 Risk and Rates of Return;;Probability distribution;Annual Total Returns,1926-1998;;;;;;k;;;Prob.;Standard deviation (si) measures total, or stand-alone, risk. The larger the si , the lower the probability that actual returns will be close to the expected return.;;;0;;;;CVp = = 0.34.;sp = 3.3% is much lower than that of either stock (20% and 13.4%). sp = 3.3% is lower than average of HT and Coll = 16.7%. \ Portfolio provides average k but lower risk. Reason: negative correlation.;;;;;Large;;As more stocks are added, each new stock has a smaller risk-reducing impact. sp falls very slowly after about 10 stocks are included, and after 40 stocks, there is little, if any, effect. The lower limit for sp is about 20% = sM .;;By forming portfolios, we can eliminate about half the riskiness of individual stocks (35% vs. 20%).;If you chose to hold a one-stock portfolio and thus are exposed to more risk than diversified investors, would you be compensated for all the risk you bear?;NO! Stand-alone risk as measured by a stock’s s or CV is not important to a well-diversified investor. Rational, risk averse investors are concerned with sp , which is based on market risk.;There can only be one price, hence market return, for a given security. Therefore, no compensation can be earned for the additional risk of a one-stock portfolio.;Beta measures a stock’s market risk. It shows a stock’s volatility relative to the market.;;;If beta = 1.0, average stock. If beta 1.0, stock riskier than average. If beta 1.0, stock less risky than average. Most stocks have betas in the range of 0.5 to 1.5.;;;;Riskier securities have higher returns, so the rank order is OK.;;;HT 17.4% 17.0% Undervalued: k k Market 15.0 15.0 Fairly valued USR 13.8 12.8 Undervalued: k k T-bills 8.0 8.0 Fairly valued Coll. 1.7 2.0 Overvalued: k k;.;;;If investors raise inflation expectations by 3%, what would happen to the SML?;SML1;If inflation did not change