财务管理第十三章课件btxx.pptx

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1、Chapter 13Chapter 13Return,Risk,and Return,Risk,and the Security Market the Security Market LineLineMcGraw-Hill/IrwinCopyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.Key Concepts and SkillsKnow how to calculate expected returnsUnderstand the impact of diversificationUnderstand the

2、 systematic risk principleUnderstand the security market lineUnderstand the risk-return trade-offBe able to use the Capital Asset Pricing Model13-2Chapter OutlineExpected Returns and VariancesPortfoliosAnnouncements,Surprises,and Expected ReturnsRisk:Systematic and UnsystematicDiversification and Po

3、rtfolio RiskSystematic Risk and BetaThe Security Market LineThe SML and the Cost of Capital:A Preview13-3Expected ReturnsExpected returns are based on the probabilities of possible outcomesIn this context,“expected”means average if the process is repeated many timesThe“expected”return does not even

4、have to be a possible return13-4Example:Expected ReturnsStateProbabilityCTBoom0.31525Normal0.51020Recession?2 1RC=.3(15)+.5(10)+.2(2)=9.9%RT=.3(25)+.5(20)+.2(1)=17.7%13-5Suppose you have predicted the following returns for stocks C and T in three possible states of the economy.What are the expected

5、returns?Variance and Standard DeviationVariance and standard deviation measure the volatility of returnsUsing unequal probabilities for the entire range of possibilitiesWeighted average of squared deviations13-6Example:Variance and Standard DeviationConsider the previous example.What are the varianc

6、e and standard deviation for each stock?Stock C2=.3(15-9.9)2+.5(10-9.9)2+.2(2-9.9)2=20.29=4.50%Stock T2=.3(25-17.7)2+.5(20-17.7)2+.2(1-17.7)2=74.41=8.63%13-7Another ExampleConsider the following information:StateProbabilityABC,Inc.(%)Boom.2515Normal.508Slowdown.154Recession.10-3What is the expected

7、return?What is the variance?What is the standard deviation?13-8PortfoliosA portfolio is a collection of assetsAn assets risk and return are important in how they affect the risk and return of the portfolioThe risk-return trade-off for a portfolio is measured by the portfolio expected return and stan

8、dard deviation,just as with individual assets13-9Example:Portfolio WeightsSuppose you have$15,000 to invest and you have purchased securities in the following amounts.What are your portfolio weights in each security?$2000 of C$3000 of KO$4000 of INTC$6000 of BPC:2/15=.133KO:3/15=.2INTC:4/15=.267BP:6

9、/15=.413-10Portfolio Expected ReturnsThe expected return of a portfolio is the weighted average of the expected returns of the respective assets in the portfolioYou can also find the expected return by finding the portfolio return in each possible state and computing the expected value as we did wit

10、h individual securities13-11Example:Expected Portfolio ReturnsConsider the portfolio weights computed previously.If the individual stocks have the following expected returns,what is the expected return for the portfolio?C:19.69%KO:5.25%INTC:16.65%BP:18.24%E(RP)=.133(19.69)+.2(5.25)+.267(16.65)+.4(18

11、.24)=15.41%13-12Portfolio VarianceCompute the portfolio return for each state:RP=w1R1+w2R2+wmRmCompute the expected portfolio return using the same formula as for an individual assetCompute the portfolio variance and standard deviation using the same formulas as for an individual asset13-13Example:P

12、ortfolio VarianceConsider the following informationInvest 50%of your money in Asset AStateProbabilityABBoom.430%-5%Bust.6-10%25%What are the expected return and standard deviation for each asset?What are the expected return and standard deviation for the portfolio?Portfolio12.5%7.5%13-14Another Exam

13、pleConsider the following informationStateProbabilityXZBoom.2515%10%Normal.6010%9%Recession.155%10%What are the expected return and standard deviation for a portfolio with an investment of$6,000 in asset X and$4,000 in asset Z?13-15Expected vs.Unexpected ReturnsRealized returns are generally not equ

14、al to expected returnsThere is the expected component and the unexpected componentAt any point in time,the unexpected return can be either positive or negativeOver time,the average of the unexpected component is zero13-16Announcements and NewsAnnouncements and news contain both an expected component

15、 and a surprise componentIt is the surprise component that affects a stocks price and therefore its returnThis is very obvious when we watch how stock prices move when an unexpected announcement is made or earnings are different than anticipated13-17Efficient MarketsEfficient markets are a result of

16、 investors trading on the unexpected portion of announcementsThe easier it is to trade on surprises,the more efficient markets should beEfficient markets involve random price changes because we cannot predict surprises13-18Systematic RiskRisk factors that affect a large number of assetsAlso known as

17、 non-diversifiable risk or market riskIncludes such things as changes in GDP,inflation,interest rates,etc.13-19Unsystematic RiskRisk factors that affect a limited number of assetsAlso known as unique risk and asset-specific riskIncludes such things as labor strikes,part shortages,etc.13-20ReturnsTot

18、al Return=expected return+unexpected returnUnexpected return=systematic portion+unsystematic portionTherefore,total return can be expressed as follows:Total Return=expected return+systematic portion+unsystematic portion13-21DiversificationPortfolio diversification is the investment in several differ

19、ent asset classes or sectorsDiversification is not just holding a lot of assetsFor example,if you own 50 Internet stocks,you are not diversifiedHowever,if you own 50 stocks that span 20 different industries,then you are diversified13-22Table 13.713-23The Principle of DiversificationDiversification c

20、an substantially reduce the variability of returns without an equivalent reduction in expected returnsThis reduction in risk arises because worse than expected returns from one asset are offset by better than expected returns from anotherHowever,there is a minimum level of risk that cannot be divers

21、ified away and that is the systematic portion13-24Figure 13.113-25Diversifiable RiskThe risk that can be eliminated by combining assets into a portfolioOften considered the same as unsystematic,unique or asset-specific riskIf we hold only one asset,or assets in the same industry,then we are exposing

22、 ourselves to risk that we could diversify away13-26Total RiskTotal risk=systematic risk+unsystematic riskThe standard deviation of returns is a measure of total riskFor well-diversified portfolios,unsystematic risk is very smallConsequently,the total risk for a diversified portfolio is essentially

23、equivalent to the systematic risk13-27Systematic Risk PrincipleThere is a reward for bearing riskThere is not a reward for bearing risk unnecessarilyThe expected return on a risky asset depends only on that assets systematic risk since unsystematic risk can be diversified away13-28Measuring Systemat

24、ic RiskHow do we measure systematic risk?We use the beta coefficient What does beta tell us?A beta of 1 implies the asset has the same systematic risk as the overall marketA beta 1 implies the asset has more systematic risk than the overall market13-29Table 13.8 Selected BetasInsert Table 13.8 here1

25、3-30Total vs.Systematic RiskConsider the following information:Standard DeviationBetaSecurity C20%1.25Security K30%0.95Which security has more total risk?Which security has more systematic risk?Which security should have the higher expected return?13-31Work the Web ExampleMany sites provide betas fo

26、r companiesYahoo Finance provides beta,plus a lot of other information under its Key Statistics linkClick on the web surfer to go to Yahoo FinanceEnter a ticker symbol and get a basic quoteClick on Key Statistics13-32Example:Portfolio BetasConsider the previous example with the following four securi

27、tiesSecurityWeightBetaC.1332.685KO.20.195INTC.2672.161BP.42.434What is the portfolio beta?.133(2.685)+.2(.195)+.267(2.161)+.4(2.434)=1.94713-33Beta and the Risk PremiumRemember that the risk premium=expected return risk-free rateThe higher the beta,the greater the risk premium should beCan we define

28、 the relationship between the risk premium and beta so that we can estimate the expected return?YES!13-34Example:Portfolio Expected Returns and BetasRfE(RA)A13-35Reward-to-Risk Ratio:Definition and ExampleThe reward-to-risk ratio is the slope of the line illustrated in the previous exampleSlope=(E(R

29、A)Rf)/(A 0)Reward-to-risk ratio for previous example=(20 8)/(1.6 0)=7.5What if an asset has a reward-to-risk ratio of 8(implying that the asset plots above the line)?What if an asset has a reward-to-risk ratio of 7(implying that the asset plots below the line)?13-36Market EquilibriumIn equilibrium,a

30、ll assets and portfolios must have the same reward-to-risk ratio,and they all must equal the reward-to-risk ratio for the market13-37Security Market LineThe security market line(SML)is the representation of market equilibriumThe slope of the SML is the reward-to-risk ratio:(E(RM)Rf)/MBut since the b

31、eta for the market is always equal to one,the slope can be rewrittenSlope=E(RM)Rf=market risk premium13-38The Capital Asset Pricing Model(CAPM)The capital asset pricing model defines the relationship between risk and returnE(RA)=Rf+A(E(RM)Rf)If we know an assets systematic risk,we can use the CAPM t

32、o determine its expected returnThis is true whether we are talking about financial assets or physical assets13-39Factors Affecting Expected ReturnPure time value of money:measured by the risk-free rateReward for bearing systematic risk:measured by the market risk premiumAmount of systematic risk:mea

33、sured by beta13-40Example-CAPMConsider the betas for each of the assets given earlier.If the risk-free rate is 4.15%and the market risk premium is 8.5%,what is the expected return for each?Security BetaExpected Return C2.6854.15+2.685(8.5)=26.97%KO0.1954.15+0.195(8.5)=5.81%INTC2.1614.15+2.161(8.5)=2

34、2.52%BP2.4344.15+2.434(8.5)=24.84%13-41Figure 13.413-42Quick QuizHow do you compute the expected return and standard deviation for an individual asset?For a portfolio?What is the difference between systematic and unsystematic risk?What type of risk is relevant for determining the expected return?Con

35、sider an asset with a beta of 1.2,a risk-free rate of 5%,and a market return of 13%.What is the reward-to-risk ratio in equilibrium?What is the expected return on the asset?13-43Comprehensive ProblemThe risk free rate is 4%,and the required return on the market is 12%.What is the required return on an asset with a beta of 1.5?What is the reward/risk ratio?What is the required return on a portfolio consisting of 40%of the asset above and the rest in an asset with an average amount of systematic risk?13-44End of Chapter13-45