period return (HPR) is equal to the holding period yield (HPY) stated as a percentage. ANS: F PTS: 1 4. The geometric mean of a series of returns is always larger than the arithmetic mean and the difference increases with the volatility of the series. ANS: F PTS: 1 5. The expected return is the average of all possible returns. ANS: F PTS: 1 6. Two measures of the risk premium are the standard deviation and the variance. ANS: F PTS: 1 7. The variance of expected returns is
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2 2. Portfolio Returns Calculation................................................................................................................ 4 2.1. 2.2. Value weighted rate of return........................................................................................................ 6 2.3. 3. Time weighted rate of return......................................................................................................... 5 Internal rate of return ...................
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set of portfolios with optimum risk-return ratio for ten companies from Mexican IPC. The sample used in this work is composed of the most representative companies in this index. A descriptive analysis of the behavior of the stocks included in this study is carried out using the binomial risk-return, which significantly contributes in selecting the most suitable stocks to be included in the portfolio. The work is concluded with finding an optimal portfolio for a risk adverse investor. The main conclusions
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thought: Risk comes from different places. Some risk comes from common sources, like the economy. Other risk comes from sources unique to each asset. This means that some kinds of risk can be diversified. Return and Risk for a Portfolio 0 First, need to know how much you’ve invested in each asset (w) as a percentage of your total funds invested. Expected return on a portfolio In other words, portfolio expected return is always a weighted average of the expected returns of the
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tools in calculating the risk and their respected return for the investors and they are being widely used by financial analyst. From different theories we can determine the value of assets into three steps i.e., Expected Cash Flow, number of periods and the expected rate of returns. Investors have several questions before investing his money in any stock or in any other commodity that is what should be the accuracy of prices of selling or buying the stocks, what could be the risk, what are the factors
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needed to meet operating expenses and provide a return to owners of the business. • Financing decisions involved generating funds internally or form external sources to the business. Such as by issuing debt or equity securities. • Financing charges amount to non-operating cash flows • The required rate of return caters for the costs to both shareholders and debt holders for funds committed to the project. Therefore, using the required rate of return involves the financing charges being incorporated
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Shama-e Zaheer Risk and Return Risk is the variability of returns from any asset. The greater the risk, the greater the required return from the asset. Therefore, in order to find the required return from any asset we need to know its risk and match that risk to another asset (or portfolio of assets) with a known return and use that as the opportunity cost of capital for the risky asset. Required Return, or, ri = Risk-free Rate (RFR) + Risk Premium (RP) Measuring Risk Calculate the standard
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ASSET ALLOCATION – allocation of an investment across broad asset classes. SECURITY SELECTION – choice of specific securities within each asset class. SECURITY ANALYSES – analyses of the value of securities. RISK-RETURN TRADE-OFF – assets with higher expected returns entail greater risk. PASSIVE MANAGEMENT – buying and holding a diversified portfolio without attempt to identify mispriced securities. ACTIVE MANAGEMENT – attempting to identify misplaces securities or to forecast broad future trends
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determine the required rate of return in an asset and indicates the relationship between return and risk of the asset. This definition is given in books. Collectively it is somewhat indiscernible. We will dissect the definition. It is commonly known that the higher the risk, the higher the return. Now, suppose we know how much risky the asset is. This model will show us how much return should be there for the asset. This return is usually known as required rate of return and it is helpful to fairly
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journals and other resources. It is never possible to get rid of all the risk when investing and the actual return on an investment may differ from what the investor expects. For that reason investors always look for a rate of return that will repay them for their risk taking. The Capital Asset Pricing Model (CAPM) is a model that relates risk and return, helping investors calculate the risk of the investment and the return on the investment that should be expected. Haim Levy and Thierry Post (2005
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