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1、g10byzw,主编,Chapter 3 Risk and Reward,3.1 Measuring Reward: The Expected Return 3.2 Measuring Risk: The Standard Deviation 3.3 Risk Preference: Risk-Neutrality and Risk-Aversion 3.4 Investment Portfolio 3.5 The Capital Asset Pricing Model 3.6 The Security Markets Line 3.7 Efficient Capital Market,3.1
2、 Measuring Reward: The Expected Return,In financial management, we often need to measure the average reward that you expect to receive from making an investment. The expected return formula is：,3.1 Measuring Reward: The Expected Return,【Example3-1】 Suppose you hold one stock, it currently trades for
3、 10 per share. In one year there is a 25% chance the share price will be 14, a 50% chance it will be 11, and a 25% chance it will be 8. The stock pays no dividends, so these payoffs correspond to returns of 40%, 10%, and -20%, respectively. What will be your expected return?,3.1 Measuring Reward: Th
4、e Expected Return,3.2 Measuring Risk: The Standard Deviation,The notations and Var denote the standard deviation and the variance, respectively. The standard deviation and the variance formula are,3.2 Measuring Risk: The Standard Deviation,【Example3-2】 Suppose you hold one stock, it currently trades
5、 for 10 per share. In one year there is a 30% chance the share price will be 12, a 60% chance it will be 11, and a 10% chance it will be 9.5. The stock pays no dividends, so these payoffs correspond to returns of 20%, 10%, and 5%, respectively. What will be its expected return and standard deviation
6、?,3.2 Measuring Risk: The Standard Deviation,3.3 Risk Preference: Risk-Neutrality and Risk-Aversion,We often assume that everyone is risk-neutral, but investors truly are risk-averse in the real world. As taught in earlier financial management texts, great opportunities elsewhere in the economy stil
7、l manifest themselves as a high expected return that you should apply to your projects.,3.4 Investment Portfolio,Investors like more reward and less risk. The diversification of investment portfolio can reduce risk. An intuitive explanation of this investment diversification is based on the proverb:
8、not to put all your eggs into one basket.,3.5 The Capital Asset Pricing Model,The capital asset pricing model (CAPM) is a model that gives an appropriate expected rate of return for each security if a securitys relevant risk characteristics are given. The CAPM formula is：,3.5 The Capital Asset Prici
9、ng Model,【Example3-3】 Suppose that the risk-free rate is 4% and the expected rate of return on the overall stock market is 6%. What is the appropriate expected rate of return for a stock that has a beta of 3?,The CAPM equation is often graphed as the security markets line (SML), which shows the rela
10、tionship between the expected rate of return of a security and its beta. Because all securities properly follow the CAPM formula, they must lie on a straight line.,3.6 The Security Markets Line,3.6 The Security Markets Line,Figure 3-1 Relationship Between Expected Return on an Individual Security an
11、d Beta of the Security,3.7 Efficient Capital Market,Efficient capital markets are those in which current market prices reflect all available information. That is, current market prices reflect the underlying present value of securities, and there is no way to make unusual or excess profits by using
12、the available information.,3.7 Efficient Capital Market,Figure 3-2 Traditional Capital Market Efficiency,Anecdote: What Can Be Learned From Financial Management History About Risk And Reward? Actually, almost everything that there are the regularities, and most important points in financial management history about risk and reward are following.,3.7 Efficient Capital Market,
