Risk and Return: Portfolio Theory and Asset Pricing Models Portfolio Theory Capital Asset Pricing Model (CAPM) Efficient frontier Capital Market Line (CML) Security Market Line (SML) Beta calculation Arbitrage pricing theory Fama-French 3-factor model Portfolio Theory • Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.6
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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 (systematic risk). Diversifiable risk arises from
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| Groupthink and Risky Shift Phenomenon | | | | | | Table of Contents Executive Summary i Introduction 1 The Groupthink phenomenon 1 The Risky-shift phenomenon 2 Conclusion 4 Recommendation 4 Reference list 5 Executive Summary Groupthink phenomenon continues to exist and influence in a group decision making. This is especially happen when group cohesiveness is high and there is an absence of open communication. However‚ understanding the theory would enable
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Overview The Risk - Return Relationship Another fundamental relationship in the study of finance is the relationship between expected return and the expected level of associated risk. The nature of the relationship is that as the level of expected risk increases‚ the level of expected return also increases. The opposite is true as well. Lower levels of expected risk are associated with lower expected returns. This RISK-RETURN RELATIONSHIP is characterized as being a direct relationship
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1.2 EXPLANATION OF THE FOUR CATEGORIES OF RISKY BEHAVIOUR Teenage suicide: This is a deliberate act for someone to kill themselves. This can be done by drinking harmful substances‚ overdosing on medication or drugs‚ shooting or hanging one’s self‚ jumping in front of moving vehicles and trains as well as jumping off buildings and bridges. According to WHO a suicide occurs every 40 seconds and an attempted suicide every 3 seconds. In South Africa the most common or frequent ways are hanging yourself
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line of returns for Asset B is steeper (has greater slope) than Asset A The slopes of these lines are the betas for each asset: 2.61 for Asset B and 1.48 for Asset A. The greater beta value of Asset B signifies that it is more responsive to market factors and therefore makes it more risky than Asset A. P8-20 Interpreting Beta a. A 15% increase in market return would lead to an 18% (15% x 1.20) increase in the asset’s return. b. An 8% decrease in market return would lead
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Risky Business In the 1983 smash hit Risky Business‚ director Paul Brickman takes his audience on a wild ride through Chicago. The film spans across the Chicago land area‚ and beyond. From a small high school‚ to a world famous hotel‚ it really shows what Chicago is made of. But it also holds a dark side to itself‚ when the dangerous and socially perverse world of prostitution comes into play. Joel Goodman‚ played by Tom Cruise‚ is an average high school senior. He has regrets and doubts
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Introduction Long ago people viewed “risk” as the inevitability of chance which occurred beyond the control of humans. In today’s world the concept of “risk” has turned into riches‚ as risky ventures have become the norm in the business world. “Risk” therefore applies to decisions that can have a bad or good outcome. The different types of “risk” can include financial‚ legal‚ ethical‚ information technology‚ or even human resource since it can exist everywhere and at any time in our lives.
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The Return of the Soldier Background Rebecca West writes to expose the social issues of her time. There are many perspectives one could take in reading her novel The Return of the Soldier‚ each equally valuable. There is one fine thread throughout this novel that I find most relevant. West raises the question; how well do social norms serve people when confronted with cold reality? Particularly‚ the role that women were expected to play is worth paying attention to throughout West’s writing. This
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Merck’s Risky Bet on Research While Kenneth Frazier worked liability suits for Merck‚ he caught the company’s attention and they hired him in 1992. By 1999 Frazier was appointed Merck’s general counsel. Merck saw that Frazier had several good personality traits and values that would benefit their organization. Kenneth Frazier is a very hard-working man and has been taught not to fail and to push himself to excellence. Frazier has always pushed himself to always do better‚ he has never just
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