England. In 1803 John Dalton created the Dalton’s Atomic Theory. When Dalton’s atomic theory was created chemists believe his ideas were untrue. Even though Dalton’s atomic theory is two centuries old scientist still question to this day whether his theory has been proven correctly or incorrectly. There appear to be many articles out there pointing out what was inaccurate about his theory. However‚ still to this day chemist/people believe some of his theories are correct. Dalton’s hypothesis tried to prove
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Topic 5: Risk and Return Learning Outcomes introduction to risk and return expected return and risk on individual asset expected return and risk on portfolio systematic and unsystematic risk diversification capital asset pricing model (CAPM) and the security market line Risk and Return M K Lai Page 2 Introduction to Risk and Return finance can be complicated‚ but it can be reduced to three basic concepts cash flows Risk and Return time value of money risk
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(1)Financial assets are expected to generate cash flows and hence the riskiness of a financial asset is measured in terms of the riskiness of its cash flows. (2)The riskiness of an asset may be measured on a stand-alone basis or in a portfolio context. An asset may be very risky if held by itself but may be much less risky when it is a part of a large portfolio. (3)In the context of a portfolio‚ the risk of an asset is divided into two parts: diversifiable risk (unsystematic risk) and market risk
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first country to use an atomic bomb on another country‚ and the U.S. is still the only country to have ever used an atomic bomb. The U.S. dropped the atomic bomb on Hiroshima‚ Japan on August 6‚ 1945 and dropped another atomic bomb on Nagasaki‚ Japan on August 9‚ 1945. 70‚000 died instantly in Hiroshima and 80‚000 died instantly in Nagasaki. Even though the U.S. destroyed many Japanese lives the atomic bombing of Hiroshima was the right decision. However dropping the second atomic bomb on Nagasaki was
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that is not paid out as dividends. d) Distinguish between the ‘Signalling Effect and the Clientele-Effect’ of dividend of dividend policy. Signaling Effect: A theory that suggests company announcements of an increase in dividend payouts act as an indicator of the firm possessing strong future prospects. It comes from game theory. A manager who has good investment opportunities is more likely to "signal" than one who doesn’t because it is in his or her best interest to do so. Clientele-Effect:
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SHARPE’S PORTFOLIO THEORY This model was developed by William Sharpe. According to Sharp’s model‚ the theory estimates the expected return and variance of indices which may be one or more and are related to economic activity. This theory has come to be known as Market Model. Sharpe’s single index model will reduce the market related risk and maximize the returns for a given level of risk. Sharpe’s model will take into consideration the total risk of portfolio. The total risk consists of both
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Report Introduction Markowitz (1952‚ 1956) pioneered the development of a quantitative method that takes the diversification benefits of portfolio allocation into account. Modern portfolio theory is the result of his work on portfolio optimization. Ideally‚ in a mean-variance optimization model‚ the complete investment opportunity set‚ i.e. all assets‚ should be considered simultaneously. However‚ in practice‚ most investors distinguish between different asset classes within their portfolio-allocation
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(1977) 129-176. (0 North-Holland A CRITIQUE OF THE ASSET PRICING Publishing Company THEORY’S TESTS Part I: On Past and Potential Testability of the Theory* Richard ROLL* University of California‚ Los Angeles‚ l CA 90024‚ U.S.A. Received June 1976‚ revised version received October 1976 Testing the two-parameter asset pricing theory is difficult (and currently infeasible). Due to a mathematical equivalence between the individual return/beta’ linearity relation and the market portfolio’s
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Mean-Variance Analysis Mean-variance portfolio theory is based on the idea that the value of investment opportunities can be meaningfully measured in terms of mean return and variance of return. Markowitz called this approach to portfolio formation mean-variance analysis. Mean-variance analysis is based on the following assumptions: 1. All investors are risk averse; they prefer less risk to more for the same level of expected return. 2. Expected returns for all assets are known. 3. The
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’ B.A. BASHIR* University of Lancaster‚ Lancaster LA1 4 YX‚ UK Received January 1982‚ final version received February 1983 The Islamic banking and finance system is recent in origin. Its special features preclude the application of modern finance theories. The system is briefly described in this paper as part of an initial attempt to develop a simple model for the portfolio management of an Islamic bank. The model is built on the assumption of certainty for one period. A numerical example
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