Risk & Return

In the backtesting approach there are two test used in this case for calculation of VAR. First test is known as the proportion of failure or un-conditional coverage and

2. What would have been Martin’s return for years 2000, 2001, and 2002 if his portfolio had remained with its initial holdings?

The historical roots on Return on Investments (ROI) have an extensive historical background which involves the Du Pont system. It is significant to illustrate the major history behind the Return on Investments (ROI) and how the Du Pont system started. The purpose of the Return on Investment (ROI) is to evaluate the efficiency of an investment or compare the efficiency of various investments. In addition to (ROI) share the common class of profitability ratios. Several examples will show how Return on Investments (ROI) and the Du Pont

21. Suppose you own a risky asset with an expected return of 12% and a standard deviation of 20%. If the

2. Calculate the expected rate of return on each of the five investment alternatives listed in Exhibit 13.1 (p. 106). Based solely on expected returns, which of the potential investments appears best?

The standard deviation is a measure of a security’s (or a portfolio’s) stand-alone risk. The larger the standard deviation,

What is the standard deviation of the returns on a stock given the following information?

So in different types of situation we will get different types of return depending on which type of investment it is and what the economic situation is at the time (www.xpresstrade.com).

−32 −4 10 38 28 75 24 Average and Standard Deviations for Stand-Alone Investments    Use formulas shown previously (tedious) or use Excel (easy) What is Blandy’s stand-alone risk?

Provide a correlation graph for MAR and NYSE. Based on your analysis, state whether you would prefer to invest in a single asset portfolio or construct a 2 asset portfolio? Include supporting examples to justify your answer. (20 marks)

12. Rate of Return: This is further linked to the income on investment. This is the rate of capital that is lost or gained from an investment. It is normally expressed as a percentage. This is crucial in finance because the rate of return requires being much higher than the real investment costs so as to make the investment useful.

Furthermore, the annual rate of return on investment, which is the return created from investment over a particular period of time can be calculated by first knowing the income, the gain or loss in value and the original value at the beginning of the year. Then, the percentage return can be estimated by adding the income and the gain together, then divided by the original value {[income + gain / original value} or {[income + (ending value – original value)] / original value} (Siegal & Yacht, 2009, p. 232)

Most people who have invested or are considering investing in any financial asset, ask at some point in time the following question: What is the most I can loose on my investment? The Value at Risk, commonly known as VaR, tries to answer this question within a reasonable bound. VaR is used in financial mathematics and financial risk management as a risk management tool to measure the risk of loss of an individual asset or a whole portfolio. Although it provides a good sense of risk one is undertaking, it shouldn’t be an alternative method to risk adjusted value and or other probabilistic approaches.

Explain how the five percent value at risk (VAR) position would be interpreted for business tomorrow?

Return on Investment ROI is essentially a single period measure. Income is computed for a specified period and then divided by the average book value of assets of the same year