AN INTRODUCTION TO RISK AND RETURN. Chapter 7
|
|
- Arlene Fletcher
- 5 years ago
- Views:
Transcription
1 1 AN INTRODUCTION TO RISK AND RETURN Chapter 7
2 Learning Objectives 2 1. Calculate realized and expected rates of return and risk. 2. Describe the historical pattern of financial market returns. 3. Compute geometric (or compound) and arithmetic average rates of return. 4. Explain the efficient market hypothesis and why it is important to stock prices.
3 Principles Applied in This Chapter 3 Principle 2: There is a Risk-Return Tradeoff. Principle 4: Market Prices Reflect Information.
4 Calculating the Realized 4 Return from an Investment Realized return or cash return measures the gain or loss on an investment. Example: You invested in 1 share of Apple (AAPL) for $95 and sold a year later for $200. The company did not pay any dividend during that period. What will be the cash return on this investment?
5 Calculating the Realized Return from an Investment 5 Suppose you buy a share for $95. It pays no dividend. After 1 year you sell it for $200 Cash Return = $ $95 = $105
6 Calculating the Realized 6 Return from an Investment Percentage return cash return divided by the beginning stock price. Rate of Return = ($ $95) 95 = %
7 7 Calculating Realized Rate of Return
8 Calculating the Expected 8 Return from an Investment Expected return is what the investor expects to earn from an investment in the future.
9 9 Table 7-2 Calculating the Expected Rate of Return for an Investment in Common Stock
10 Measuring Risk 10 The variability in returns can be quantified by computing the Variance or Standard Deviation in investment returns. The formula for the variance is μ μ μ The standard deviation is
11 11 Expected Return, E(r) = 0.15 Variance = Standard Deviation =
12 A Brief History of the Financial Markets 12 Investors have historically earned higher rates of return on riskier investments. However, having a higher expected rate of return simply means that investors expect to realize a higher return. Higher return is not guaranteed.
13 Historical Rates of Return for U.S. Financial Securities:
14 14 Historical Rates of Return,
15 15 Stocks, Bonds, Commodities, and Real Estate
16 16 Stocks, Gold and Real Esate
17 17 Figure 7.4 Historical Rates of Return in Global Markets:
18 18 Figure 7.5 Investing in Emerging Markets:
19 Lessons Learned 19 Lesson #1: The riskier investments have historically realized higher returns. Lesson #2: The historical returns of the higher-risk investment classes have higher standard deviations.
20 Geometric vs. Arithmetic Average Rates of Return 20 What was the average of the yearly rates of return? The arithmetic average rate of return answers the question What was the growth rate of your investment? The geometric average rate of return answers the question
21 Choosing the Right Average 21 Both arithmetic average geometric average are important and correct. The following grid provides some guidance as to which average is appropriate and when: Question being addressed: What annual rate of return can we expect for next year? What annual rate of return can we expect over a multiyear horizon? Appropriate Average Calculation: The arithmetic average rate of return calculated using annual rates of return. The geometric average rate of return calculated over a similar past period.
22 Computing the Geometric 22 Average Rate of Return Compute the arithmetic and geometric average for the following stock.
23 Computing Geometric Average Rate of Return 23 Arithmetic Average = (40+(-50)) 2 = -5% Geometric Average = [(1+R year1 ) (1+R year 2 )] 1/2-1 = [(1.4) (1+(-.5))] 1/2-1 = %
24 Computing Rates of Return 24 What are the arithmetic and geometric rates of return?
25 What Determines Stock Prices 25 The value of an asset is the expected present value to the future cash flows. For stocks, the future cash flows come from Dividends Price appreciation
26 Efficient Market Hypothesis 26 The efficient market hypothesis (EMH) states that securities prices accurately reflect future expected cash flows and are based on all information available to investors. An efficient market is a market in which all the available information is fully incorporated into the prices of the securities and the returns the investors earn on their investments cannot be predicted.
27 27 The Efficient Market Hypothesis 1. The weak-form efficient market hypothesis 2. The semi-strong form efficient market hypothesis 3. The strong-form efficient market hypothesis
28 Efficient Market Hypothesis 28 Public & Private Info Public Info Transaction Info
29 29 Do We Expect Financial Markets To Be Perfectly Efficient? In general, markets are expected to be at least weak-form and semi-strong form efficient. If there did exist simple profitable strategies, then the strategies would attract the attention of investors, who by implementing their strategies would compete away the profits.
30 The Behavioral View 30 Efficient market hypothesis is based on the assumption that investors, as a group, are rational. This view has been challenged. If investors do not rationally process information, then markets may not accurately reflect even public information.
31 31 Table 7-4 Summarizing the Evidence of Anomalies to the Efficient Market Hypothesis
CHAPTER 1 A Brief History of Risk and Return
CHAPTER 1 A Brief History of Risk and Return I. DEFINITIONS TOTAL RETURN 1. The total dollar return on an equity investment is defined as the: a. increase in value of a share of stock over a period of
More information1 A Brief History of. Chapter. Risk and Return. Dollar Returns. PercentReturn. Learning Objectives. A Brief History of Risk and Return
Chapter Learning Objectives To become a wise investor (maybe even one with too much money), you need to know: 1 A Brief History of Risk and Return How to calculate the return on an investment using different
More informationChapter 12. Some Lessons from Capital Market History. Dongguk University, Prof. Sun-Joong Yoon
Chapter 12. Some Lessons from Capital Market History Dongguk University, Prof. Sun-Joong Yoon Outline Returns The Historical Record Average Returns: The First Lesson The Variability of Returns: The Second
More informationLecture 4. Risk and Return: Lessons from Market History
Lecture 4 Risk and Return: Lessons from Market History Outline 1 Returns 2 Holding-Period Returns 3 Return Statistics 4 Average Stock Returns and Risk-Free Returns 5 Risk Statistics 6 More on Average Returns
More informationOklahoma State University Spears School of Business. Risk & Return
Oklahoma State University Spears School of Business Risk & Return Slide 2 Returns Dollar Returns the sum of the cash received and the change in value of the asset, in dollars. Dividends Ending market value
More informationAn investment s return is your reward for investing. An investment s risk is the uncertainty of what will happen with your investment dollar.
Chapter 7 An investment s return is your reward for investing. An investment s risk is the uncertainty of what will happen with your investment dollar. The relationship between risk and return is a tradeoff.
More information10. Lessons From Capital Market History
10. Lessons From Capital Market History Chapter Outline How to measure returns The lessons from the capital market history Return: Expected returns Risk: the variability of returns 1 1 Risk, Return and
More informationCh. 8 Risk and Rates of Return. Return, Risk and Capital Market. Investment returns
Ch. 8 Risk and Rates of Return Topics Measuring Return Measuring Risk Risk & Diversification CAPM Return, Risk and Capital Market Managers must estimate current and future opportunity rates of return for
More informationCOMM 324 INVESTMENTS AND PORTFOLIO MANAGEMENT ASSIGNMENT 2 Due: October 20
COMM 34 INVESTMENTS ND PORTFOLIO MNGEMENT SSIGNMENT Due: October 0 1. In 1998 the rate of return on short term government securities (perceived to be risk-free) was about 4.5%. Suppose the expected rate
More informationChapter 1 A Brief History of Risk and Return
Chapter 1 A Brief History of Risk and Return Concept Questions 1. For both risk and return, increasing order is b, c, a, d. On average, the higher the risk of an investment, the higher is its expected
More informationCHAPTER 9 SOME LESSONS FROM CAPITAL MARKET HISTORY
CHAPTER 9 SOME LESSONS FROM CAPITAL MARKET HISTORY Answers to Concepts Review and Critical Thinking Questions 1. They all wish they had! Since they didn t, it must have been the case that the stellar performance
More informationDiversification. Finance 100
Diversification Finance 100 Prof. Michael R. Roberts 1 Topic Overview How to measure risk and return» Sample risk measures for some classes of securities Brief Statistics Review» Realized and Expected
More informationValuing Stock Options: The Black-Scholes-Merton Model. Chapter 13
Valuing Stock Options: The Black-Scholes-Merton Model Chapter 13 1 The Black-Scholes-Merton Random Walk Assumption l Consider a stock whose price is S l In a short period of time of length t the return
More informationA Formula for Annuities
A Formula for Annuities We ve seen that, with a bit of work, an annuity can be priced by summing geometric sequence. If we apply the geometric sum to a general annuity, we get a formula for annuities:
More informationPrinciples of Finance Risk and Return. Instructor: Xiaomeng Lu
Principles of Finance Risk and Return Instructor: Xiaomeng Lu 1 Course Outline Course Introduction Time Value of Money DCF Valuation Security Analysis: Bond, Stock Capital Budgeting (Fundamentals) Portfolio
More informationBehavioral Finance 1-1. Chapter 2 Asset Pricing, Market Efficiency and Agency Relationships
Behavioral Finance 1-1 Chapter 2 Asset Pricing, Market Efficiency and Agency Relationships 1 The Pricing of Risk 1-2 The expected utility theory : maximizing the expected utility across possible states
More informationStatistics vs. statistics
Statistics vs. statistics Question: What is Statistics (with a capital S)? Definition: Statistics is the science of collecting, organizing, summarizing and interpreting data. Note: There are 2 main ways
More informationEcon 422 Eric Zivot Summer 2004 Final Exam Solutions
Econ 422 Eric Zivot Summer 2004 Final Exam Solutions This is a closed book exam. However, you are allowed one page of notes (double-sided). Answer all questions. For the numerical problems, if you make
More informationEfficient capital markets. Skema Business School. Portfolio Management 1. Course Outline
Efficient capital markets bertrand.groslambert@skema.edu Skema Business School Portfolio Management 1 Course Outline Introduction (lecture 1) Presentation of portfolio management Chap.2,3,5 Introduction
More informationLESSON 7-1. How and why do you prepare an income statement? CENTURY 21 ACCOUNTING 2009 South-Western, Cengage Learning
LESSON 7-1 How and why do you prepare an income statement? 2 Reporting Financial Information General ledger information must be summarized, organized, and reported to the owners and managers General ledger
More informationChapter 1 - Investments: Background and Issues
Chapter 1 - Investments: Background and Issues Investment vs. investments Real assets vs. financial assets Financial markets and the economy Investment process Competitive markets Players in investment
More informationOverview of Concepts and Notation
Overview of Concepts and Notation (BUSFIN 4221: Investments) - Fall 2016 1 Main Concepts This section provides a list of questions you should be able to answer. The main concepts you need to know are embedded
More information1.1 Interest rates Time value of money
Lecture 1 Pre- Derivatives Basics Stocks and bonds are referred to as underlying basic assets in financial markets. Nowadays, more and more derivatives are constructed and traded whose payoffs depend on
More informationINTRODUCTION TO PORTFOLIO ANALYSIS. Dimensions of Portfolio Performance
INTRODUCTION TO PORTFOLIO ANALYSIS Dimensions of Portfolio Performance Interpretation of Portfolio Returns Portfolio Return Analysis Conclusions About Past Performance Predictions About Future Performance
More informationCHAPTER 5. Introduction to Risk, Return, and the Historical Record INVESTMENTS BODIE, KANE, MARCUS. McGraw-Hill/Irwin
CHAPTER 5 Introduction to Risk, Return, and the Historical Record McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 5-2 Interest Rate Determinants Supply Households
More informationUnderstanding Investments
Understanding Investments Theories and Strategies Nikiforos T. Laopodis j Routledge Taylor & Francis Croup NEW YORK AND LONDON CONTENTS List of Illustrations Preface xxni xxix Parti Chapter 1 INVESTMENT
More informationMBF1243 Derivatives Prepared by Dr Khairul Anuar
MBF1243 Derivatives Prepared by Dr Khairul Anuar L3 Determination of Forward and Futures Prices www.mba638.wordpress.com Consumption vs Investment Assets When considering forward and futures contracts,
More informationFNCE 4030 Fall 2012 Roberto Caccia, Ph.D. Midterm_2a (2-Nov-2012) Your name:
Answer the questions in the space below. Written answers require no more than few compact sentences to show you understood and master the concept. Show your work to receive partial credit. Points are as
More informationInternational Certificate in Wealth and Investment Management
International Certificate in Wealth and Investment Management Effective from 21 May 2017 Chartered Institute for Securities & Investment Objective of the examination The objective of the examination is
More information7. For the table that follows, answer the following questions: x y 1-1/4 2-1/2 3-3/4 4
7. For the table that follows, answer the following questions: x y 1-1/4 2-1/2 3-3/4 4 - Would the correlation between x and y in the table above be positive or negative? The correlation is negative. -
More informationECONOMICS 422 MIDTERM EXAM 1 R. W. Parks Autumn (25) Josephine lives in a two period Fisherian world. Her utility function for 2
NAME: ECONOMICS 422 MIDTERM EXAM 1 R. W. Parks Autumn 1995 Answer all questions on the examination sheets. Weights are given in parentheses. In general you should try to show your work. If you only present
More informationBUSM 411: Derivatives and Fixed Income
BUSM 411: Derivatives and Fixed Income 3. Uncertainty and Risk Uncertainty and risk lie at the core of everything we do in finance. In order to make intelligent investment and hedging decisions, we need
More informationChapter 5: Statistical Inference (in General)
Chapter 5: Statistical Inference (in General) Shiwen Shen University of South Carolina 2016 Fall Section 003 1 / 17 Motivation In chapter 3, we learn the discrete probability distributions, including Bernoulli,
More informationPaper 4. Fund Investment Consultant Examination. Thailand Securities Institute November 2014
Fund Investment Consultant Examination Paper 4 Thailand Securities Institute November 2014 Copyright 2014, All right reserve Thailand Securities Institute (TSI) The Stock Exchange of Thailand Page 1 Paper
More informationSECURITY VALUATION BOND VALUATION
SECURITY VALUATION BOND VALUATION When a corporation (or the government) wants to borrow money, it often sells a bond. An investor gives the corporation money for the bond, and the corporation promises
More informationChapter 10: Capital Markets and the Pricing of Risk
Chapter 0: Capital Markets and the Pricing of Risk- Chapter 0: Capital Markets and the Pricing of Risk Big Picture: ) To value a project, we need an interest rate to calculate present values ) The interest
More informationFinancial Returns: Stylized Features and Statistical Models
Financial Returns: Stylized Features and Statistical Models Qiwei Yao Department of Statistics London School of Economics q.yao@lse.ac.uk p.1 Definitions of returns Empirical evidence: daily prices in
More informationChapter 7: Point Estimation and Sampling Distributions
Chapter 7: Point Estimation and Sampling Distributions Seungchul Baek Department of Statistics, University of South Carolina STAT 509: Statistics for Engineers 1 / 20 Motivation In chapter 3, we learned
More informationGatton College of Business and Economics Department of Finance & Quantitative Methods. Chapter 13. Finance 300 David Moore
Gatton College of Business and Economics Department of Finance & Quantitative Methods Chapter 13 Finance 300 David Moore Weighted average reminder Your grade 30% for the midterm 50% for the final. Homework
More informationLess Reliable International Parity Conditions
The International Parity Conditions The Law of One Price Interest Rate Parity Less Reliable International Parity Conditions The Real Exchange Rate 1 The International Parity Conditions Though this be madness,
More informationCorporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2010
Corporate Finance (Honors) Finance 100 Sections 301 and 302 The Wharton School, University of Pennsylvania Fall 2010 Course Description The purpose of this course is to introduce techniques of financial
More informationLecture 18 Section Mon, Feb 16, 2009
The s the Lecture 18 Section 5.3.4 Hampden-Sydney College Mon, Feb 16, 2009 Outline The s the 1 2 3 The 4 s 5 the 6 The s the Exercise 5.12, page 333. The five-number summary for the distribution of income
More informationChapter 4. Investment Return and Risk
Chapter 4 Investment Return and Risk Return The reward for investing. Most returns are not guaranteed. E(r) is important factor in selection. Total Return consists of Current Income Appreciation 4-2 Importance
More informationCIS March 2012 Diet. Examination Paper 2.3: Derivatives Valuation Analysis Portfolio Management Commodity Trading and Futures.
CIS March 2012 Diet Examination Paper 2.3: Derivatives Valuation Analysis Portfolio Management Commodity Trading and Futures Level 2 Derivative Valuation and Analysis (1 12) 1. A CIS student was making
More informationLecture 18 Section Mon, Sep 29, 2008
The s the Lecture 18 Section 5.3.4 Hampden-Sydney College Mon, Sep 29, 2008 Outline The s the 1 2 3 The 4 s 5 the 6 The s the Exercise 5.12, page 333. The five-number summary for the distribution of income
More informationThe Stock Market Mishkin Chapter 7:Part B (pp )
The Stock Market Mishkin Chapter 7:Part B (pp. 152-165) Modified Notes from F. Mishkin (Bus. School Edition, 2 nd Ed 2010) L. Tesfatsion (Iowa State University) Last Revised: 1 March 2011 2004 Pearson
More informationI. Return Calculations (20 pts, 4 points each)
University of Washington Winter 015 Department of Economics Eric Zivot Econ 44 Midterm Exam Solutions This is a closed book and closed note exam. However, you are allowed one page of notes (8.5 by 11 or
More informationDo not provide irrelevant information, but show all steps that are necessary to solve a problem.
UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination 2017-18 INVESTMENT MANAGEMENT Time allowed: 2 hours Answer FOUR questions Each question you answer is worth 25/100 points. This
More informationStock Price Behavior. Stock Price Behavior
Major Topics Statistical Properties Volatility Cross-Country Relationships Business Cycle Behavior Page 1 Statistical Behavior Previously examined from theoretical point the issue: To what extent can the
More informationValue at Risk Ch.12. PAK Study Manual
Value at Risk Ch.12 Related Learning Objectives 3a) Apply and construct risk metrics to quantify major types of risk exposure such as market risk, credit risk, liquidity risk, regulatory risk etc., and
More informationFinancial Economics. A Concise Introduction to Classical and Behavioral Finance Chapter 1. Thorsten Hens and Marc Oliver Rieger
Financial Economics A Concise Introduction to Classical and Behavioral Finance Chapter 1 Thorsten Hens and Marc Oliver Rieger Swiss Banking Institute, University of Zurich / BWL, University of Trier August
More informationInputs Methodology. Portfolio Strategist
Inputs Methodology Prepared for Portfolio Strategist September 2007 225 North Michigan Avenue Suite 700 Chicago, IL 60601-7676 (312) 616-1620 Table of Contents Portfolio Strategist... 2 Forecasting Expected
More informationPortfolio Management
Portfolio Management Risk & Return Return Income received on an investment (Dividend) plus any change in market price( Capital gain), usually expressed as a percent of the beginning market price of the
More informationSmartboard Jeopardy. Lesson Notes. Jeopardy Board. unit 8 review jeopardy.notebook. January 30, 2014
Smartboard Jeopardy Lesson notes Title Page Lesson Notes Directions for using this Smartboard Jeopardy template. Double click on the Category names to edit and change. Edit each of the Question pages with
More informationChen-wei Chiu ECON 424 Eric Zivot July 17, Lab 4. Part I Descriptive Statistics. I. Univariate Graphical Analysis 1. Separate & Same Graph
Chen-wei Chiu ECON 424 Eric Zivot July 17, 2014 Part I Descriptive Statistics I. Univariate Graphical Analysis 1. Separate & Same Graph Lab 4 Time Series Plot Bar Graph The plots show that the returns
More informationWhere Vami 0 = 1000 and Where R N = Return for period N. Vami N = ( 1 + R N ) Vami N-1. Where R I = Return for period I. Average Return = ( S R I ) N
The following section provides a brief description of each statistic used in PerTrac and gives the formula used to calculate each. PerTrac computes annualized statistics based on monthly data, unless Quarterly
More informationChapter 9. Technical Analysis & Market Efficiency. Technical Analysis. Market Volume Kaplan Financial. Market volume 9-1
Chapter 9 Technical Analysis & Market Efficiency Technical Analysis study of forces at work in the market & their effect on stock prices Implies that price patterns or internal market factors reveal the
More informationCHAPTER 10 SOME LESSONS FROM CAPITAL MARKET HISTORY
CHAPTER 10 SOME LESSONS FROM CAPITAL MARKET HISTORY Answers to Concepts Review and Critical Thinking Questions 3. No, stocks are riskier. Some investors are highly risk averse, and the extra possible return
More informationThe Basic Tools of Finance
Seventh Edition Principles of Macroeconomics N. Gregory Mankiw CHAPTER 14 The Basic Tools of Finance In this chapter, look for the answers to these questions What is present value? How can we use it to
More informationSection 4B: The Power of Compounding
Section 4B: The Power of Compounding Definitions The principal is the amount of your initial investment. This is the amount on which interest is paid. Simple interest is interest paid only on the original
More informationBOND ANALYTICS. Aditya Vyas IDFC Ltd.
BOND ANALYTICS Aditya Vyas IDFC Ltd. Bond Valuation-Basics The basic components of valuing any asset are: An estimate of the future cash flow stream from owning the asset The required rate of return for
More informationChapter 13 Portfolio Theory questions
Chapter 13 Portfolio Theory 15-20 questions 175 176 2. Portfolio Considerations Key factors Risk Liquidity Growth Strategies Stock selection - Fundamental analysis Use of fundamental data on the company,
More informationTrading Global Markets using Technical Analysis. Andy Bower
Trading Global Markets using Technical Analysis Andy Bower www.alchemetrics.org Format Technical Analysis Data Chart Patterns Computers/Backtesting Neural Nets/Genetic Algorithms Essentials of Trading
More informationThe Efficient Market Hypothesis
Efficient Market Hypothesis (EMH) 11-2 The Efficient Market Hypothesis Maurice Kendall (1953) found no predictable pattern in stock prices. Prices are as likely to go up as to go down on any particular
More informationMonetary Economics Measuring Asset Returns. Gerald P. Dwyer Fall 2015
Monetary Economics Measuring Asset Returns Gerald P. Dwyer Fall 2015 WSJ Readings Readings this lecture, Cuthbertson Ch. 9 Readings next lecture, Cuthbertson, Chs. 10 13 Measuring Asset Returns Outline
More informationDisclaimer: This resource package is for studying purposes only EDUCATION
Disclaimer: This resource package is for studying purposes only EDUCATION Chapter 6: Valuing stocks Bond Cash Flows, Prices, and Yields - Maturity date: Final payment date - Term: Time remaining until
More informationFor 9.220, Term 1, 2002/03 02_Lecture12.ppt Student Version. What is risk? An overview of market performance Measuring performance
Risk and Return Introduction For 9.220, erm, 2002/03 02_Lecture2.ppt Student Version Outline Introduction What is risk? performance Measuring performance Return and risk measures Summary and Conclusions
More informationL04: Homework Answer Key
L04: Homework Answer Key Instructions: You are encouraged to collaborate with other students on the homework, but it is important that you do your own work. Before working with someone else on the assignment,
More informationCHAPTER 12: MARKET EFFICIENCY AND BEHAVIORAL FINANCE
CHAPTER 12: MARKET EFFICIENCY AND BEHAVIORAL FINANCE 1. The correlation coefficient between stock returns for two non-overlapping periods should be zero. If not, one could use returns from one period to
More informationFNCE 5610, Personal Finance H Guy Williams, 2009
CH 12: Introduction to Investment Concepts Introduction to Investing Investing is based on the concept that forgoing immediate consumption results in greater future consumption (through compound interest
More informationChapter 21: Savings Models Lesson Plan
Lesson Plan For All Practical Purposes Arithmetic Growth and Simple Interest Geometric Growth and Compound Interest Mathematical Literacy in Today s World, 8th ed. A Limit to Compounding A Model for Saving
More informationCHAPTER 11. The Efficient Market Hypothesis INVESTMENTS BODIE, KANE, MARCUS. Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 11 The Efficient Market Hypothesis McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. 11-2 Efficient Market Hypothesis (EMH) Maurice Kendall (1953) found no
More informationInvestigate. Name Per Algebra IB Unit 9 - Exponential Growth Investigation. Ratio of Values of Consecutive Decades. Decades Since
Name Per Algebra IB Unit 9 - Exponential Growth Investigation Investigate Real life situation 1) The National Association Realtors estimates that, on average, the price of a house doubles every ten years
More informationLECTURE 3. Market Efficiency & Investment Valuation - EMH and Behavioral Analysis. The Quants Book Eugene Fama and Cliff Asnes
Baruch College Executive MS in Financial Statement Analysis CHAPTER 6 (PARTIAL) LECTURE 3 Market Efficiency & Investment Valuation - EMH and Behavioral Analysis Professor s Notes Are markets efficient?????
More informationCome & Join Us at VUSTUDENTS.net
Come & Join Us at VUSTUDENTS.net For Assignment Solution, GDB, Online Quizzes, Helping Study material, Past Solved Papers, Solved MCQs, Current Papers, E-Books & more. Go to http://www.vustudents.net and
More informationFV N = PV (1+ r) N. FV N = PVe rs * N 2011 ELAN GUIDES 3. The Future Value of a Single Cash Flow. The Present Value of a Single Cash Flow
QUANTITATIVE METHODS The Future Value of a Single Cash Flow FV N = PV (1+ r) N The Present Value of a Single Cash Flow PV = FV (1+ r) N PV Annuity Due = PVOrdinary Annuity (1 + r) FV Annuity Due = FVOrdinary
More informationPopulation Mean GOALS. Characteristics of the Mean. EXAMPLE Population Mean. Parameter Versus Statistics. Describing Data: Numerical Measures
GOALS Describing Data: Numerical Measures Chapter 3 McGraw-Hill/Irwin Copyright 010 by The McGraw-Hill Companies, Inc. All rights reserved. 3-1. Calculate the arithmetic mean, weighted mean, median, mode,
More informationSTAT:2010 Statistical Methods and Computing. Using density curves to describe the distribution of values of a quantitative
STAT:10 Statistical Methods and Computing Normal Distributions Lecture 4 Feb. 6, 17 Kate Cowles 374 SH, 335-0727 kate-cowles@uiowa.edu 1 2 Using density curves to describe the distribution of values of
More informationStock Market Behavior - Investor Biases
Market Tips & Jargons Stock Market Behavior - Investor Biases Random Walk Theory Efficient Market Hypothesis Market Anomaly Investor s Behavioral Biases March 25, 2017 CBMC-RGTC Copyright 2014 Pearson
More informationPRMIA Exam 8002 PRM Certification - Exam II: Mathematical Foundations of Risk Measurement Version: 6.0 [ Total Questions: 132 ]
s@lm@n PRMIA Exam 8002 PRM Certification - Exam II: Mathematical Foundations of Risk Measurement Version: 6.0 [ Total Questions: 132 ] Question No : 1 A 2-step binomial tree is used to value an American
More informationFinancial Applications Involving Exponential Functions
Section 6.5: Financial Applications Involving Exponential Functions When you invest money, your money earns interest, which means that after a period of time you will have more money than you started with.
More informationLecture 10-12: CAPM.
Lecture 10-12: CAPM. I. Reading II. Market Portfolio. III. CAPM World: Assumptions. IV. Portfolio Choice in a CAPM World. V. Minimum Variance Mathematics. VI. Individual Assets in a CAPM World. VII. Intuition
More informationUniwersytet Ekonomiczny. George Matysiak. Presentation outline. Motivation for Performance Analysis
Uniwersytet Ekonomiczny George Matysiak Performance measurement 30 th November, 2015 Presentation outline Risk adjusted performance measures Assessing investment performance Risk considerations and ranking
More informationHANDBOOK OF. Market Risk CHRISTIAN SZYLAR WILEY
HANDBOOK OF Market Risk CHRISTIAN SZYLAR WILEY Contents FOREWORD ACKNOWLEDGMENTS ABOUT THE AUTHOR INTRODUCTION XV XVII XIX XXI 1 INTRODUCTION TO FINANCIAL MARKETS t 1.1 The Money Market 4 1.2 The Capital
More informationModeling Portfolios that Contain Risky Assets Risk and Return I: Introduction
Modeling Portfolios that Contain Risky Assets Risk and Return I: Introduction C. David Levermore University of Maryland, College Park Math 420: Mathematical Modeling January 26, 2012 version c 2011 Charles
More informationNotes: Review of Future & Present Value, Some Statistics & Calculating Security Returns
Notes: Review of Future & Present Value, Some Statistics & Calculating Security Returns I. Future Values How much is money today worth in the future? This is the future value (FV) of money today. a) Simple
More informationWeek 2 Quantitative Analysis of Financial Markets Hypothesis Testing and Confidence Intervals
Week 2 Quantitative Analysis of Financial Markets Hypothesis Testing and Confidence Intervals Christopher Ting http://www.mysmu.edu/faculty/christophert/ Christopher Ting : christopherting@smu.edu.sg :
More information2014 EXAMINATIONS KNOWLEDGE LEVEL PAPER 3 : MANAGEMENT INFORMATION
EXAMINATION NO. 2014 EXAMINATIONS KNOWLEDGE LEVEL PAPER 3 : MANAGEMENT INFORMATION FRIDAY 5 DECEMBER 2014 TIME ALLOWED : 3 HOURS 9.00 AM - 12.00 NOON INSTRUCTIONS: - 1. You are allowed 15 minutes reading
More informationSenior Finance Seminar (FIN 4385) Market Efficiency
Senior Finance Seminar (FIN 4385) Market Efficiency Why do we care about Market Efficiency? Market Efficiency is the extent to which prices reflect. If markets are efficient, then what should we conclude
More informationRisk and Return - Capital Market Theory. Chapter 8
1 Risk and Return - Capital Market Theory Chapter 8 Learning Objectives 2 1. Calculate the expected rate of return and volatility for a portfolio of investments and describe how diversification affects
More informationMarket Volatility and Risk Proxies
Market Volatility and Risk Proxies... an introduction to the concepts 019 Gary R. Evans. This slide set by Gary R. Evans is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International
More informationDiscounting a mean reverting cash flow
Discounting a mean reverting cash flow Marius Holtan Onward Inc. 6/26/2002 1 Introduction Cash flows such as those derived from the ongoing sales of particular products are often fluctuating in a random
More informationAFM 371 Winter 2008 Chapter 14 - Efficient Capital Markets
AFM 371 Winter 2008 Chapter 14 - Efficient Capital Markets 1 / 24 Outline Background What Is Market Efficiency? Different Levels Of Efficiency Empirical Evidence Implications Of Market Efficiency For Corporate
More informationSurvey of Capital Market Assumptions
Survey of Capital Market Assumptions 2017 Edition Horizon Actuarial Services, LLC is proud to serve as the actuary to over 90 multiemployer defined benefit pension plans across the United States and across
More informationInvestment Companies Pool funds of individual investors and invest in a wide range of securities or other assets. pooling of assets Mutual Funds and Other Investment Companies Provide several functions
More informationCHAPTER 1 AN OVERVIEW OF THE INVESTMENT PROCESS
CHAPTER 1 AN OVERVIEW OF THE INVESTMENT PROCESS TRUE/FALSE 1. The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest. ANS: T 2. An investment
More informationExpected value and variance
Expected value and variance Josemari Sarasola Statistics for Business Gizapedia Josemari Sarasola Expected value and variance 1 / 33 Introduction As for data sets, for probability distributions we can
More informationREI-2: Incorporating Reinsurance Costs and Risk Loads into Personal Lines Rates
REI-2: Incorporating Reinsurance Costs and Risk Loads into Personal Lines Rates Rade T. Musulin Vice President Operations, Reinsurance, & Public Affairs Florida Farm Bureau Insurance Companies CAS Ratemaking
More informationMacroeonomics. The Basic Tools of Finance. Introduction. In this chapter, look for the answers to these questions: N.
C H A P T E R 14 The Basic Tools of Finance P R I N C I P L E S O F Macroeonomics N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights
More informationModels of Asset Pricing
appendix1 to chapter 5 Models of Asset Pricing In Chapter 4, we saw that the return on an asset (such as a bond) measures how much we gain from holding that asset. When we make a decision to buy an asset,
More information