财务管理cha7课件

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1、McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.0Risk and ReturnChapter 11McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.1Key Concepts and SkillsnKnow how to calculate expected returnsnUnderstand the impact of diversi

2、ficationnUnderstand the systematic risk principlenUnderstand the security market linenUnderstand the risk-return trade-offMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.2Chapter OutlinenExpected Returns and VariancesnPortfoliosnAnnouncements, Surprises, and

3、Expected ReturnsnRisk: Systematic and UnsystematicnDiversification and Portfolio RisknSystematic Risk and BetanThe Security Market LinenThe SML and the Cost of Capital: A PreviewMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.3Expected ReturnsnExpected return

4、s are based on the probabilities of possible outcomesnIn this context, “expected” means average if the process is repeated many timesnThe “expected” return does not even have to be a possible returnniiiRpRE1)(McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.4E

5、xample: Expected ReturnsnSuppose you have predicted the following returns for stocks C and T in three possible states of nature. What are the expected returns?nStateProbabilityCTnBoom0.30.150.25nNormal0.50.100.20nRecession?0.020.01nRC = .3(.15) + .5(.10) + .2(.02) = .099 = 9.99%nRT = .3(.25) + .5(.2

6、0) + .2(.01) = .177 = 17.7%McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.5Variance and Standard DeviationnVariance and standard deviation still measure the volatility of returnsnUsing unequal probabilities for the entire range of possibilitiesnWeighted aver

7、age of squared deviationsniiiRERp122)(McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.6Example: Variance and Standard DeviationnConsider the previous example. What are the variance and standard deviation for each stock?nStock Cn2 = .3(.15-.099)2 + .5(.1-.099)

8、2 + .2(.02-.099)2 = .002029n = .045nStock Tn2 = .3(.25-.177)2 + .5(.2-.177)2 + .2(.01-.177)2 = .007441n = .0863McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.7Another ExamplenConsider the following information:nStateProbability ABC, Inc.nBoom.25.15nNormal.50

9、.08nSlowdown.15.04nRecession.10-.03nWhat is the expected return?nWhat is the variance?nWhat is the standard deviation?McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.8PortfoliosnA portfolio is a collection of assetsnAn assets risk and return is important in h

10、ow it affects the risk and return of the portfolionThe risk-return trade-off for a portfolio is measured by the portfolio expected return and standard deviation, just as with individual assetsMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.9Example: Portfolio

11、 WeightsnSuppose you have $15,000 to invest and you have purchased securities in the following amounts. What are your portfolio weights in each security?n$2000 of DCLKn$3000 of KOn$4000 of INTCn$6000 of KEIDCLK: 2/15 = .133KO: 3/15 = .2INTC: 4/15 = .267KEI: 6/15 = .4McGraw-Hill 2004 The McGraw-Hill

12、Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.10Portfolio Expected ReturnsnThe expected return of a portfolio is the weighted average of the expected returns for each asset in the portfolionYou can also find the expected return by finding the portfolio return in each possible state and com

13、puting the expected value as we did with individual securitiesmjjjPREwRE1)()(McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.11Example: Expected Portfolio ReturnsnConsider the portfolio weights computed previously. If the individual stocks have the following

14、expected returns, what is the expected return for the portfolio?nDCLK: 19.65%nKO: 8.96%nINTC: 9.67%nKEI: 8.13%nE(RP) = .133(19.65) + .2(8.96) + .167(9.67) + .4(8.13) = 9.27%McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.12Portfolio VariancenCompute the portf

15、olio return for each state:RP = w1R1 + w2R2 + + wmRmnCompute the expected portfolio return using the same formula as for an individual assetnCompute the portfolio variance and standard deviation using the same formulas as for an individual assetMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All ri

16、ghts reserved.McGraw-Hill/Irwin11.13Example: Portfolio VariancenConsider the following informationnInvest 50% of your money in Asset AnStateProbability ABnBoom.430%-5%nBust.6-10%25%nWhat is the expected return and standard deviation for each asset?nWhat is the expected return and standard deviation

17、for the portfolio?Portfolio12.5%7.5%McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.14Another ExamplenConsider the following informationnStateProbability XZnBoom.2515%10%nNormal.6010%9%nRecession.155%10%nWhat is the expected return and standard deviation for

18、a portfolio with an investment of $6000 in asset X and $4000 in asset Y?McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.15Expected versus Unexpected ReturnsnRealized returns are generally not equal to expected returnsnThere is the expected component and the u

19、nexpected componentnAt any point in time, the unexpected return can be either positive or negativenOver time, the average of the unexpected component is zeroMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.16Announcements and NewsnAnnouncements and news contai

20、n both an expected component and a surprise componentnIt is the surprise component that affects a stocks price and therefore its returnnThis is very obvious when we watch how stock prices move when an unexpected announcement is made or earnings are different than anticipatedMcGraw-Hill 2004 The McGr

21、aw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.17Efficient MarketsnEfficient markets are a result of investors trading on the unexpected portion of announcementsnThe easier it is to trade on surprises, the more efficient markets should benEfficient markets involve random price chang

22、es because we cannot predict surprisesMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.18Systematic RisknRisk factors that affect a large number of assetsnAlso known as non-diversifiable risk or market risknIncludes such things as changes in GDP, inflation, in

23、terest rates, etc.McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.19Unsystematic RisknRisk factors that affect a limited number of assetsnAlso known as unique risk and asset-specific risknIncludes such things as labor strikes, part shortages, etc.McGraw-Hill

24、2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.20ReturnsnTotal Return = expected return + unexpected returnnUnexpected return = systematic portion + unsystematic portionnTherefore, total return can be expressed as follows:nTotal Return = expected return + systematic por

25、tion + unsystematic portionMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.21DiversificationnPortfolio diversification is the investment in several different asset classes or sectorsnDiversification is not just holding a lot of assetsnFor example, if you own

26、50 internet stocks, you are not diversifiednHowever, if you own 50 stocks that span 20 different industries, then you are diversifiedMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.22Table 11.7 McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reser

27、ved.McGraw-Hill/Irwin11.23The Principle of DiversificationnDiversification can substantially reduce the variability of returns without an equivalent reduction in expected returnsnThis reduction in risk arises because worse than expected returns from one asset are offset by better than expected retur

28、ns from anothernHowever, there is a minimum level of risk that cannot be diversified away and that is the systematic portionMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.24Figure 11.1McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGra

29、w-Hill/Irwin11.25Diversifiable RisknThe risk that can be eliminated by combining assets into a portfolionOften considered the same as unsystematic, unique or asset-specific risknIf we hold only one asset, or assets in the same industry, then we are exposing ourselves to risk that we could diversify

30、awayMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.26Total RisknTotal risk = systematic risk + unsystematic risknThe standard deviation of returns is a measure of total risknFor well diversified portfolios, unsystematic risk is very smallnConsequently, the t

31、otal risk for a diversified portfolio is essentially equivalent to the systematic riskMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.27Systematic Risk PrinciplenThere is a reward for bearing risknThere is not a reward for bearing risk unnecessarilynThe expec

32、ted return on a risky asset depends only on that assets systematic risk since unsystematic risk can be diversified awayMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.28Measuring Systematic RisknHow do we measure systematic risk?nWe use the beta coefficient t

33、o measure systematic risknWhat does beta tell us?nA beta of 1 implies the asset has the same systematic risk as the overall marketnA beta 1 implies the asset has more systematic risk than the overall marketMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.29Tab

34、le 11.8McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.30Work the Web ExamplenMany sites provide betas for companiesnYahoo Finance provides beta, plus a lot of other information under its pronClick on the web surfer to go to Yahoo FinancenEnter a ticker symbo

35、l and get a basic quotenClick on profileMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.31Total versus Systematic RisknConsider the following information: Standard DeviationBetanSecurity C20%1.25nSecurity K30%0.95nWhich security has more total risk?nWhich sec

36、urity has more systematic risk?nWhich security should have the higher expected return?McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.32Example: Portfolio BetasnConsider the previous example with the following four securitiesnSecurityWeightBetanDCLK.1334.03nK

37、O.20.84nINTC.1671.05nKEI.40.59nWhat is the portfolio beta?n.133(4.03) + .2(.84) + .167(1.05) + .4(.59) = 1.12McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.33Beta and the Risk PremiumnRemember that the risk premium = expected return risk-free ratenThe higher

38、 the beta, the greater the risk premium should benCan we define the relationship between the risk premium and beta so that we can estimate the expected return?nYES!McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.34Example: Portfolio Expected Returns and Betas

39、RfE(RA)A0%5%10%15%20%25%30%00.511.522.53BetaExpected ReturnMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.35Reward-to-Risk Ratio: Definition and ExamplenThe reward-to-risk ratio is the slope of the line illustrated in the previous examplenSlope = (E(RA) Rf)

40、/ (A 0)nReward-to-risk ratio for previous example = (20 8) / (1.6 0) = 7.5nWhat if an asset has a reward-to-risk ratio of 8 (implying that the asset plots above the line)?nWhat if an asset has a reward-to-risk ratio of 7 (implying that the asset plots below the line)?McGraw-Hill 2004 The McGraw-Hill

41、 Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.36Market EquilibriumnIn equilibrium, all assets and portfolios must have the same reward-to-risk ratio and they all must equal the reward-to-risk ratio for the marketMfMAfARRERRE)()(McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights r

42、eserved.McGraw-Hill/Irwin11.37Security Market LinenThe security market line (SML) is the representation of market equilibriumnThe slope of the SML is the reward-to-risk ratio: (E(RM) Rf) / MnBut since the beta for the market is ALWAYS equal to one, the slope can be rewrittennSlope = E(RM) Rf = marke

43、t risk premiumMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.38Capital Asset Pricing ModelnThe capital asset pricing model (CAPM) defines the relationship between risk and returnnE(RA) = Rf + A(E(RM) Rf)nIf we know an assets systematic risk, we can use the C

44、APM to determine its expected returnnThis is true whether we are talking about financial assets or physical assetsMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.39Factors Affecting Expected ReturnnPure time value of money measured by the risk-free ratenRewar

45、d for bearing systematic risk measured by the market risk premiumnAmount of systematic risk measured by betaMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.40Example - CAPMnConsider the betas for each of the assets given earlier. If the risk-free rate is 6.15

46、% and the market risk premium is 9.5%, what is the expected return for each?nSecurityBeta Expected ReturnnDCLK4.036.15 + 4.03(9.5) = 44.435%nKO0.846.15 + .84(9.5) = 14.13%nINTC1.056.15 + 1.05(9.5) = 16.125%nKEI0.596.15 + .59(9.5) = 11.755%McGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights r

47、eserved.McGraw-Hill/Irwin11.41SML and EquilibriumMcGraw-Hill 2004 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin11.42Quick QuiznHow do you compute the expected return and standard deviation for an individual asset? For a portfolio?nWhat is the difference between systematic and unsystematic risk?nWhat type of risk is relevant for determining the expected return?nConsider an asset with a beta of 1.2, a risk-free rate of 5% and a market return of 13%.nWhat is the reward-to-risk ratio in equilibrium?nWhat is the expected return on the asset?