CH06RiskandRatesofReturn财务管理英文版.ppt
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财务管理ppt英文课件Chapter 5
Possible outcomes and probabilities are known e.g., Roulette Wheel or Dice
Uncertainty -- exists when:
Possible outcomes or probabilities are unknown e.g., Drilling for Oil in an unknown field
2
Fundamentals of Financial Management, 11/e by Van Horne and Wachowicz.
Slides prepared by Wu Xiaolan
Defining Return
Income received on an investment plus any change in market price, usually expressed as a percent of the beginning market price of the investment.
Risk-The variability of returns from those that are expected.
When probabilities are known, we can analyze risk using probability distributions. Assign a probability to each state of nature, and be exhaustive, so thatpi = 1
15%
Copyright 2001 Prentice-Hall, Inc.
11
Fundamentals of Financial Management, 11/e by Van Horne and Wachowicz.
Uncertainty -- exists when:
Possible outcomes or probabilities are unknown e.g., Drilling for Oil in an unknown field
2
Fundamentals of Financial Management, 11/e by Van Horne and Wachowicz.
Slides prepared by Wu Xiaolan
Defining Return
Income received on an investment plus any change in market price, usually expressed as a percent of the beginning market price of the investment.
Risk-The variability of returns from those that are expected.
When probabilities are known, we can analyze risk using probability distributions. Assign a probability to each state of nature, and be exhaustive, so thatpi = 1
15%
Copyright 2001 Prentice-Hall, Inc.
11
Fundamentals of Financial Management, 11/e by Van Horne and Wachowicz.
财务管理英文版166页PPT文档
Basket Wonders Statement of Earnings (in thousands) for Year Ending December 31, 2019a
Ⅰ.Primary Types of Financial Statements
Balance Sheet
A summary of a firm’s financial position on a given date that shows total assets = total liabilities + owners’ equity.
Examples of External Uses of Statement Analysis
Trade Creditors -- Focus on the liquidity of the firm. Bondholders -- Focus on the long-term cash flow of
Basket Wonders Balance Sheet (thousands) Dec. 31, 2019a
Cash and C.E.
$
a. How the firm stands on
90 Acct. Rec.c
a specific date.
394 Inventories
b. What BW owned.
16
Other Accrued Liab. d 100
Current Liab. e $ 500
Long-Term Debt f
530
Shareholders’ Equity
Com. Stock ($1 par) g
200
Add Pd in Capital g
ch05 Risk and Rates of Return 财务管理基础课件
Difficult to compare standard deviations, because return has not been accounted for.
5-14
Comparing risk and return
Security T-bills
Expected return
8.0%
HT, despite having the highest standard deviation of returns, has a relatively average CV.
5-17
Illustrating the CV as a measure of relative risk
Prob.
i1
(8.0 - 8.0) 2 (0.1) (8.0 - 8.0) 2 (0.2)
1
2
T bills
(8.0
- 8.0) 2 (0.4)
(8.0
- 8.0) 2 (0.2)
(8.0 - 8.0) 2 (0.1)
T bills 0.0% HT 20.0%
Coll 13.4% USR 18.8% M 15.3%
Risk premium – the difference between the return on a risky asset and less risky asset, which serves as compensation for investors to hold riskier securities.
5-12
Comparing standard deviations
Prob. T - bill USR HT
0 8 13.8 17.4
Rate of Return (%)
5-14
Comparing risk and return
Security T-bills
Expected return
8.0%
HT, despite having the highest standard deviation of returns, has a relatively average CV.
5-17
Illustrating the CV as a measure of relative risk
Prob.
i1
(8.0 - 8.0) 2 (0.1) (8.0 - 8.0) 2 (0.2)
1
2
T bills
(8.0
- 8.0) 2 (0.4)
(8.0
- 8.0) 2 (0.2)
(8.0 - 8.0) 2 (0.1)
T bills 0.0% HT 20.0%
Coll 13.4% USR 18.8% M 15.3%
Risk premium – the difference between the return on a risky asset and less risky asset, which serves as compensation for investors to hold riskier securities.
5-12
Comparing standard deviations
Prob. T - bill USR HT
0 8 13.8 17.4
Rate of Return (%)
财务管理学及财务知识分析(英文版)(PPT 31页)
= 7.0% + (6.0%)1.2 = 14.2%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 17
What’s the DCF cost of common equity, ks? Given: D0 = $4.19; P0 = $50; g = 5%.
Copyright © 2001 by Harcourt, Inc.
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10 - 14
Opportunity cost: The return stockholders could earn on alternative investments of equal risk.
Use this formula: kpD P p p$1 $1 1 .1 0 1 00.09 9 0 .0%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 8
Picture of Preferred Stock
0
kp = ?
Copyright © 2001 by Harcourt, Inc.
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10 - 16
What’s the cost of common equity based on the CAPM?
kRF = 7%, RPM = 6%, b = 1.2.
ks = kRF + (kM – kRF )b.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 17
What’s the DCF cost of common equity, ks? Given: D0 = $4.19; P0 = $50; g = 5%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 14
Opportunity cost: The return stockholders could earn on alternative investments of equal risk.
Use this formula: kpD P p p$1 $1 1 .1 0 1 00.09 9 0 .0%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 8
Picture of Preferred Stock
0
kp = ?
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
10 - 16
What’s the cost of common equity based on the CAPM?
kRF = 7%, RPM = 6%, b = 1.2.
ks = kRF + (kM – kRF )b.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
CHAPTER5 Risk and Rates of Return (《财务管理基础》PPT课件)
correlation. This is typical. Coll. – Is countercyclical with the economy, and
has a negative correlation. This is unusual.
5-8
RETURN: CALCULATING THE EXPECTED RETURN FOR EACH ALTERNATIVE
^
k
5-16
RISK RANKINGS, BY COEFFICIENT OF VARIATION
T-bill HT Coll. USR Market
CV
0.000 1.149 7.882 1.362 1.020
Collections has the highest degree of risk per unit of return.
Larger σi is associated with a wider probability distribution of returns.
Difficult to compare standard deviations, because return has not been accounted for.
-2.0% 14.7% -10.0% 1.0%
20.0% 0.0% 7.0% 15.0%
35.0% -10.0% 45.0% 29.0%
50.0% -20.0% 30.0% 43.0%
5-6
WHY IS THE T-BILL RETURN INDEPENDENT OF THE ECONOMY? DO T-BILLS PROMISE A COMPLETELY RISK-FREE RETURN?
has a negative correlation. This is unusual.
5-8
RETURN: CALCULATING THE EXPECTED RETURN FOR EACH ALTERNATIVE
^
k
5-16
RISK RANKINGS, BY COEFFICIENT OF VARIATION
T-bill HT Coll. USR Market
CV
0.000 1.149 7.882 1.362 1.020
Collections has the highest degree of risk per unit of return.
Larger σi is associated with a wider probability distribution of returns.
Difficult to compare standard deviations, because return has not been accounted for.
-2.0% 14.7% -10.0% 1.0%
20.0% 0.0% 7.0% 15.0%
35.0% -10.0% 45.0% 29.0%
50.0% -20.0% 30.0% 43.0%
5-6
WHY IS THE T-BILL RETURN INDEPENDENT OF THE ECONOMY? DO T-BILLS PROMISE A COMPLETELY RISK-FREE RETURN?
2章Risk and Return 学习课件,财务管理英文版
Topic 4(Chapter 2)part1
Risk and Return
Basic return concepts Basic risk concepts Stand-alone risk Portfolio risk Risk and return: CAPM/SML
Rate of Return
When two investments have the same expected returns but different standard deviations, most people choose the one with the lower standard deviation and therefore,the lower risk.
p
n
(kpi
kˆp)2Pi
i1
p = ((3.0 - 9.6)20.10 + (6.4 - 9.6)20.20 + (10.0 - 9.6)20.40 + (12.5 - 9.6)20.20 + (15.0 - 9.6)20.10)1/2 = 3.3%.
p is much lower than: either stock (20% and 13.4%).
average of HT and Coll (16.7%).
The portfolio provides average return but much lower risk. The key here is negative correlation.
Two-Stock Portfolios
Two stocks can be combined to form a riskless portfolio if r = -1.0.
Risk and Return
Basic return concepts Basic risk concepts Stand-alone risk Portfolio risk Risk and return: CAPM/SML
Rate of Return
When two investments have the same expected returns but different standard deviations, most people choose the one with the lower standard deviation and therefore,the lower risk.
p
n
(kpi
kˆp)2Pi
i1
p = ((3.0 - 9.6)20.10 + (6.4 - 9.6)20.20 + (10.0 - 9.6)20.40 + (12.5 - 9.6)20.20 + (15.0 - 9.6)20.10)1/2 = 3.3%.
p is much lower than: either stock (20% and 13.4%).
average of HT and Coll (16.7%).
The portfolio provides average return but much lower risk. The key here is negative correlation.
Two-Stock Portfolios
Two stocks can be combined to form a riskless portfolio if r = -1.0.
财务管理基础课件：Valuation and Rates of Return
• Principal payment at maturity is used interchangeably with par value or face value of the bond
• Discounting $1,000 back to the present at 10%, we have:
10-14
Time to Maturity
• Influences the impact of a change in yield to maturity on valuation
• Longer the maturity, the greater the impact of changes in yield
10-8
Concept of Yield to Maturity
• The yield to maturity or the discount rate is the required rate of return required by bondholders
• Three factors influence the required rate of return:
• Business Risk: inability of the firm to retain its competitive position and stability and growth
• Financial risk: inability of the firm to meet its debt obligations as and when due
• The present value of regular interest payments discounted at Y
• Discounting $1,000 back to the present at 10%, we have:
10-14
Time to Maturity
• Influences the impact of a change in yield to maturity on valuation
• Longer the maturity, the greater the impact of changes in yield
10-8
Concept of Yield to Maturity
• The yield to maturity or the discount rate is the required rate of return required by bondholders
• Three factors influence the required rate of return:
• Business Risk: inability of the firm to retain its competitive position and stability and growth
• Financial risk: inability of the firm to meet its debt obligations as and when due
• The present value of regular interest payments discounted at Y
财务管理 英文版PPT课件
1
Chapter
The Goals and Functions of Financial Management
Copyright © 2008 by The McGraw-Hill CompanieMs, IcnGc.rAalwl r-iHghitlsl/rIerswerivned.
Chapter Outline
– Cash and inventory management – Capital structure theory – Dividend policy
1-5
Modern Issues in Finance
• Focus has been on:
– Risk-return relationships – Maximization of return for a given level of risk – Portfolio management – Capital structure theory
– Income statements – Balance sheets – Statement of cash flows
• Finance links economic theory with the numbers of accounting
1-3
Evolution of the Field of Finance
• At the turn of the century: Emerged as a field separate from economics
• By 1930s: Financial practices revolved around such topics as:
– Preservation of capital – Maintenance of liquidity – Reorganization of financially troubled
Chapter
The Goals and Functions of Financial Management
Copyright © 2008 by The McGraw-Hill CompanieMs, IcnGc.rAalwl r-iHghitlsl/rIerswerivned.
Chapter Outline
– Cash and inventory management – Capital structure theory – Dividend policy
1-5
Modern Issues in Finance
• Focus has been on:
– Risk-return relationships – Maximization of return for a given level of risk – Portfolio management – Capital structure theory
– Income statements – Balance sheets – Statement of cash flows
• Finance links economic theory with the numbers of accounting
1-3
Evolution of the Field of Finance
• At the turn of the century: Emerged as a field separate from economics
• By 1930s: Financial practices revolved around such topics as:
– Preservation of capital – Maintenance of liquidity – Reorganization of financially troubled
财务管理英文课件3
1
2. Holding period return
If an investor has hold an assets for n periods with annual rate of return r, his holding period return is ：
Holding period return 1 r 1
Geometric average return 4 (1.10) (.95) (1.20) (1.15) 1 .095844 9.58%
3
Holding Period Return: Example
Note that the geometric average is not the same thing as the ariБайду номын сангаасhmetic average:
7
Rates of Return 1926-2002
60 40
20
0
-20
Common Stocks Long T-Bonds T-Bills
-40 -60 26 30 35 40 45 50 55
60
65
70
75
80
85
90
95 2000
Source: © Stocks, Bonds, Bills, and Inflation 2000 Yearbook™, Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). All rights reserved.
$5,520
2. Holding period return
If an investor has hold an assets for n periods with annual rate of return r, his holding period return is ：
Holding period return 1 r 1
Geometric average return 4 (1.10) (.95) (1.20) (1.15) 1 .095844 9.58%
3
Holding Period Return: Example
Note that the geometric average is not the same thing as the ariБайду номын сангаасhmetic average:
7
Rates of Return 1926-2002
60 40
20
0
-20
Common Stocks Long T-Bonds T-Bills
-40 -60 26 30 35 40 45 50 55
60
65
70
75
80
85
90
95 2000
Source: © Stocks, Bonds, Bills, and Inflation 2000 Yearbook™, Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). All rights reserved.
$5,520
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p = 3.3% is lower than average of HT and Coll = 16.7%.
\ Portfolio provides average ^k but lower risk.
Reason: negative correlation.
Copyright © 2001 by Harcourt, Inc.
^kp is between ^kHT and ^kCOLL.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Alternative Method
6 - 20
Economy Prob.
Recession 0.10
Below avg. 0.20
6 -1
CHAPTER 6
Risk and Rates of Return
Stand-alone risk Portfolio risk Risk & return: CAPM/SML
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -2
Risk,
20.0% 15.3 18.8*
0.0 13.4*
All rights reserved.
6 - 16
Coefficient of Variation (CV)
Standardized measure of dispersion about the expected value:
Std dev
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.
6 - 15
Expected Returns vs. Risk
Security
HT Market USR T-bills Coll.
Expected return
17.4% 15.0 13.8* 8.0 1.7*
*Seems misplaced.
Copyright © 2001 by Harcourt, Inc.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -9
Calculate the expected rate of return on each alternative:
k^ = expected rate of return.
n
kˆ = k Pi i. i=1
All rights reserved.
6 - 23
General statements about risk
Most stocks are positively correlated. rk,m 0.65.
35% for an average stock.
Combining stocks generally lowers risk.
All rights reserved.
Prob. T-bill
USR HT
6 - 13
0 8 13.8 17.4 Rate of Return (%)
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 14
Standard deviation (i) measures total, or stand-alone, risk.
^k = CVA > CVB.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 18
Portfolio Risk and Return
Assume a two-stock portfolio with $50,000 in HT and $50,000 in Collections.
Inflation
3.2
4.5
0 3.2%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -5
Investment Alternatives
(Given in the problem)
Economy Prob. T-Bill HT Coll USR MP
+
(8.0
–
8.0)20.2
1/2
T-bills = + (8.0 – 8.0)20.4 + (8.0 – 8.0)20.2
+
(8.0
–
8.0)20.1
T-bills = 0.0%. HT = 20.0%.
Coll = 13.4%. USR = 18.8%.
M = 15.3%.
Copyright © 2001 by Harcourt, Inc.
^k 17.4% 15.0 13.8 8.0 1.7
HT appears to be the best, but is it really?
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 11
What’s the standard deviation of returns for each alternative?
Boom
0.1 8.0 50.0 -20.0 30.0 43.0
1.0
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -6
Why is the T-bill return independent of the economy?
Will return the promised 8% regardless of the economy.
CV = Mean = ^k .
Shows risk per unit of return.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 17
A
B
0
A = B , but A is riskier because larger
probability of losses.
However, not much unexpected inflation is likely to occur over a relatively short period.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -8
Do the returns of HT and Coll. move with or counter to the economy?
^kHT = (-22%)0.1 + (-2%)0.20 + (20%)0.40 + (35%)0.20
+ (50%)0.1 = 17.4%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 10
HT Market USR T-bill Coll.
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6 - 21
(3.0 – 9.6)20.10
+ (6.4 – 9.6)20.20
p = + (10.0 – 9.6)20.40
+ (12.5 – 9.6)20.20
+
(15.0
–
What 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.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
All rights reserved.
6 -4
Annual Total Returns,1926-1998
Average Standard Return Deviation
Distribution
Small-company
stocks
17.4%
Large-company
stocks
13.2
33.8% 20.3
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -3
Probability distribution
Firm X
Firm Y
-70
0
15
Rate of 100 return (%)
Expected Rate of Return
Copyright © 2001 by Harcourt, Inc.
9.6)20.10
1/ 2
= 3.3%.
CVp =
\ Portfolio provides average ^k but lower risk.
Reason: negative correlation.
Copyright © 2001 by Harcourt, Inc.
^kp is between ^kHT and ^kCOLL.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
Alternative Method
6 - 20
Economy Prob.
Recession 0.10
Below avg. 0.20
6 -1
CHAPTER 6
Risk and Rates of Return
Stand-alone risk Portfolio risk Risk & return: CAPM/SML
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -2
Risk,
20.0% 15.3 18.8*
0.0 13.4*
All rights reserved.
6 - 16
Coefficient of Variation (CV)
Standardized measure of dispersion about the expected value:
Std dev
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.
6 - 15
Expected Returns vs. Risk
Security
HT Market USR T-bills Coll.
Expected return
17.4% 15.0 13.8* 8.0 1.7*
*Seems misplaced.
Copyright © 2001 by Harcourt, Inc.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -9
Calculate the expected rate of return on each alternative:
k^ = expected rate of return.
n
kˆ = k Pi i. i=1
All rights reserved.
6 - 23
General statements about risk
Most stocks are positively correlated. rk,m 0.65.
35% for an average stock.
Combining stocks generally lowers risk.
All rights reserved.
Prob. T-bill
USR HT
6 - 13
0 8 13.8 17.4 Rate of Return (%)
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 14
Standard deviation (i) measures total, or stand-alone, risk.
^k = CVA > CVB.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 18
Portfolio Risk and Return
Assume a two-stock portfolio with $50,000 in HT and $50,000 in Collections.
Inflation
3.2
4.5
0 3.2%
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -5
Investment Alternatives
(Given in the problem)
Economy Prob. T-Bill HT Coll USR MP
+
(8.0
–
8.0)20.2
1/2
T-bills = + (8.0 – 8.0)20.4 + (8.0 – 8.0)20.2
+
(8.0
–
8.0)20.1
T-bills = 0.0%. HT = 20.0%.
Coll = 13.4%. USR = 18.8%.
M = 15.3%.
Copyright © 2001 by Harcourt, Inc.
^k 17.4% 15.0 13.8 8.0 1.7
HT appears to be the best, but is it really?
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 11
What’s the standard deviation of returns for each alternative?
Boom
0.1 8.0 50.0 -20.0 30.0 43.0
1.0
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -6
Why is the T-bill return independent of the economy?
Will return the promised 8% regardless of the economy.
CV = Mean = ^k .
Shows risk per unit of return.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 17
A
B
0
A = B , but A is riskier because larger
probability of losses.
However, not much unexpected inflation is likely to occur over a relatively short period.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -8
Do the returns of HT and Coll. move with or counter to the economy?
^kHT = (-22%)0.1 + (-2%)0.20 + (20%)0.40 + (35%)0.20
+ (50%)0.1 = 17.4%.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 10
HT Market USR T-bill Coll.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 - 21
(3.0 – 9.6)20.10
+ (6.4 – 9.6)20.20
p = + (10.0 – 9.6)20.40
+ (12.5 – 9.6)20.20
+
(15.0
–
What 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.
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
All rights reserved.
6 -4
Annual Total Returns,1926-1998
Average Standard Return Deviation
Distribution
Small-company
stocks
17.4%
Large-company
stocks
13.2
33.8% 20.3
Copyright © 2001 by Harcourt, Inc.
All rights reserved.
6 -3
Probability distribution
Firm X
Firm Y
-70
0
15
Rate of 100 return (%)
Expected Rate of Return
Copyright © 2001 by Harcourt, Inc.
9.6)20.10
1/ 2
= 3.3%.
CVp =