Risk and Return
5.1 RATES OF RETURN
McGrawHill/Irwin
© 2004 The McGrawHill Companies, Inc., All Rights Reserved.
Learning objectives
Use data on the past performance of stocks and bonds to
characterize the risk and return features of these investments Determine the expected return and risk of portfolios that are constructed by combining risky assets with riskfree investment in Treasury bills Evaluate the performance of a passive strategy
McGrawHill/Irwin
© 2004 The McGrawHill Companies, Inc., All Rights Reserved.
Holding Period Return
The holding period return (HPR)(보유기간수익률) Depends on the increase (or decrease) in the price of the share over the investment period as well as on any …show more content…
How to measure risk with the HPR Scenario Analysis
Process of devising a list of possible economic scenarios and
specifying the likelihood of each one, as well as the HPR that will be realized in each case i.e.) Boom, Normal growth, Recession
State of the Economy Boom Normal growth Recession
Scenario 1 2 3
probability 0.25 0.50 0.25
HPR 44% 14% 16%
McGrawHill/Irwin
© 2004 The McGrawHill Companies, Inc., All Rights Reserved.
Scenario Analysis and Probability Distributions
Probability distributions The list of possible HPRs with associated probabilities
McGrawHill/Irwin
© 2004 The McGrawHill Companies, Inc., All Rights Reserved.
Expected return (기대수익률)
•
Expected return : The mean value of the distribution of HPR – The sum of Possible returns with associated probabilities
E(r) = S pS(s ) r(s ) E (r ) p( s)r ( s) s t 1
p(s) = probability of a state r(s) = return if a state occurs 1 to s states
• It is the average of a probability distribution of possible returns,
calculated by using the following formula: • E(R)= Sum: probability (in scenario i) * the return (in scenario i)
McGrawHill/Irwin © 2004 The McGrawHill Companies, Inc., All Rights Reserved.
Measuring Variance or Dispersion of Returns (분산)
• Variance : the expected value of the squared deviation

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