CH6RiskandRatesofReturn(财务管理,英文版).pptx

CHAPTER 6 Risk and Rates of ReturnStand-alone riskPortfolio riskRisk return: CAPM/SMLWhat is investment risk?Investment risk pertains to the probability of actually earning a low or negative return.The greater the chance of low or negative returns, the riskier the investment.Probability distributionFirm XFirm YRate ofreturn (%)xpected Rate of ReturnAnnual Total Returns,1926-1998Average StandardReturn Deviation DistributionSmall-companystocks 17.4% 33.8%Large-companystocks 13.2 20.3Long-termcorporate bonds 6.1 8.6Long-termgovernment 5.7 9.2Intermediate-termgovernment 5.5 5.7U.S. Treasurybills 3.8 3.2Inflation 3.2 4.5Investment Alternatives(Given in the problem)EconomyProb.T-BillHTCollUSRMPRecession 0.1 8.0% -22.0% 28.0% 10.0% -13.0%Below avg. 0.2 8.0 -2.0 14.7 -10.0 1.0Average 0.4 8.0 20.0 0.0 7.0 15.0Above avg. 0.2 8.0 35.0 -10.0 45.0 29.0Boom 0.1 8.0 50.0 -20.0 30.0 43.0 1.0Why is the T-bill return independent of the economy?Will return the promised 8% regardless of the economy.Do T-bills promise a completelyrisk-free return?No, T-bills are still exposed to the risk of inflation.However, not much unexpected inflation is likely to occur over a relatively short period.Do the returns of HT and Coll. move with or counter to the economy?HT: Moves with the economy, and has a positive correlation. This is typical.Coll: Is countercyclical of the economy, and has a negative correlation. This is unusual.Calculate the expected rate of return on each alternative:^k = expected rate of return.^kHT = (-22%)0.1 + (-2%)0.20 + (20%)0.40 + (35%)0.20 + (50%)0.1 = 17.4%.^kHT17.4%Market15.0USR13.8T-bill8.0Coll.1.7HT appears to be the best, but is it really?What’s the standard deviationof returns for each alternative?? = Standard deviation.? = =? =éùêú êúêú??1/2(