Risk and Rates of Return - Demo
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Transcript of Risk and Rates of Return - Demo
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The Lasallian Prayer
I will continue, O my God,
to do all my actions for the
love of You.
Leader: St. John BaptistDe La Salle,
All: Prayer for us.
Leader: Live Jesus in our
hearts,
All: Forever.
Prayer for Generosity
Dearest Lord, teach me to
be generous.
Teach me to serve You as Ishould.
To give and not to count
the cost;
to fight and not to heed
wounds;
To toil and not to seek for
rest;
To labor and ask not for
reward.
Save that of knowing that
I do Your most holy will.
Amen.
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Risk and Return
(Basic Concepts)
Presented by:
Kenneth Lagman Yumang
December 20, 2013
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LearningObjectives
Finance Definition
Types of RisksI.What is RISK?
Finance Definition
How to calculate the rate of return
II. What is RETURN?
RISK and RETURNIII. What is the relationship?
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RISK
Risk/risk/ n.A hazard; a peril; exposure to loss or injury.Risk = UNCERTAINTYStandard Deviation ()
Risk and Rate of Return, Chapter 5, 10 thEd., Fundamentals
of Financial Management by Brigham & Houston, 2010
Standard Deviationa measure of the tightness of
the probability distribution. The smaller the standarddeviation, the tighter the probability distribution, and,accordingly, the lower the riskiness of theinvestment.
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Types of Risks
1. Stand-Alone Riskthe risk an investor would face if he held only one asset.2. Portfolio Riskthe risk an investor would face if he held a number of assets.
Risk and Rate of Return, Chapter 5, 10 thEd., Fundamentals
of Financial Management by Brigham & Houston, 2010
Example:
An investor buys $100,000 short-term treasury bills with an expectedrate of return of 10%. This type of investment is essentially risk-freebecause the rate of return can be estimated quite precisely.
However, if the $100,000 were invested in the stock of a company justbeing organized to prospect oil in the middle Atlantic, then the rate of returncould not be estimated precisely.
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RETURN
Risk and Rate of Return, Chapter 5, 10thEd., Fundamentals of
Financial Management by Brigham & Houston, 2010
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Risk-Return Tradeoff
Risk and Rate of Return, Chapter 5, 10thEd., Fundamentals of
Financial Management by Brigham & Houston, 2010
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SUMMING UP
Risk and Rate of Return, Chapter 5, 10 thEd., Fundamentals
of Financial Management by Brigham & Houston, 2010
Risk, in finance, is the uncertainty/probability that the actual return isdifferent from the expected return.
It is measure by the Standard Deviation - a measure of the tightness ofthe probability distribution. The smaller the standard deviation, the
tighter the probability distribution, and, accordingly, the lower theriskiness of the investment.
Return, in finance, is the rate of gain or loss on an investment.
According to the risk-return tradeoff, invested money can render higherprofits only if it is subject to the possibility of being lost. Or statingdifferently, generally, the higher the risk, the greater the return.
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Risk and Rate of Return, Chapter 5, 10 thEd., Fundamentals
of Financial Management by Brigham & Houston, 2010
NEXTSESSION
Portfolio Risk
Managing Risk
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