FM11 Ch 05 Risk and Return_ Portfolio Theory and Asset Pricing Models

... 5-2 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 ... the correlation between A and B is 0.6, what are the expected return and standard deviation for a portfolio comprised of 30 percent Asset A and 70 percent Asset B? 5-3 Portfolio Expected Return ... Portfolios with Risk- Free Asset (Expected risk- free return = 5%) Attainable Set of Risk/ Return Combinations with Risk- Free Asset Expected return 15% 10% 5% 0% 0% 5% 10% Risk, σp 15% 20% Expected Portfolio...

FM11 Ch 04 Risk and Return_The Basics

... (Diversifiable) Risk 35 Stand-Alone Risk, σ p 20 Market Risk 10 20 30 40 2,000+ # Stocks in Portfolio - 27 Stand-alone Market Diversifiable = risk + risk risk Market risk is that part of a security’s stand-alone ... market risk, so prices and returns reflect this lower risk  The one-stock investor bears higher (stand-alone) risk, so the return is less than that required by the risk 4 - 30 How is market risk ... 0.0% Coll 5.0% 10.0% 15.0% Risk (Std Dev.) 20.0% 25.0% - 19 Portfolio Risk and Return Assume a two-stock portfolio with $50,000 in Alta Inds and $50,000 in Repo Men ^ and σ Calculate rp p - 20...

liquidity risk and asset pricing

... the effect of liquidity risk on asset pricing In the first essay, I test the liquidity- adjusted capital asset pricing model (LCAPM) of Acharya and Pedersen (2005) for 1962-2004 in Liquidity is ... commonality in liquidity and the asset pricing implication of liquidity risk in three developed countries of Japan, UK and US He finds that global and industry-wide cross-country liquidity is more ... market liquidity Acharya and Pedersen (2005) propose a theoretical asset pricing model that includes various liquidity risks: liquidity risk arising from the covariance of individual stock liquidity...

FM11 Ch 23 Derivatives and Risk Management

... portfolio risk management 23 - 20 How are risk exposures identified and measured?  Large corporations have risk management personnel which have the responsibility to identify and measure risks facing ... substantially in the interim 23 - 19 Chapter 23 Extension: Insurance and Bond Portfolio Risk Management  Risk identification and measurement  Property loss, liability loss, and financial loss exposures ... using risk management techniques in their own portfolios 23 - How can risk management increase the value of a corporation? Risk management allows firms to:  Have greater debt capacity, which has...

FM11 Ch 07 Stocks and Their Valuation

... rs = rRF + (RPM)bi could change  Inflation expectations  Risk aversion  Company risk  g could change 7 - 35 Stock value vs changes in rs and g D1 = $2, rs = 10%, and g = 5%: P0 = D1 / (rs-g) ... 0.06 0 .07 - 15 What is the stock’s market value one year from now, ^ 1? P  D1 will have been paid, so expected dividends are D2, D3, D4 and so on Thus, D2 P1 = rs - g = $2.2427 = $32.10 0 .07 - ... dividend yield and capital gains yield at t = and at t = 3? D1 2.00 t = 0: P = $25.72= 7.8% CGY = 13.0% - 7.8% = 5.2% t = 3: Now have constant growth with g = capital gains yield = 6% and dividend...

ADVANCES IN CORPORATE FINANCE AND ASSET PRICING pot

... ADVANCES IN CORPORATE FINANCE AND ASSET PRICING i This page intentionally left blank ii ADVANCES IN CORPORATE FINANCE AND ASSET PRICING EDITED BY L RENNEBOOG Department of Finance and CentER, ... reputation in fighting inflation, inflationary pressures first show up in asset- price Introduction: Corporate Restructuring and Governance, Valuation and Asset Pricing 11 inflation and increase ... International Economics & Finance (BA and MSc) and International Business (MSc) His research interests are corporate finance, venture capital financing and initial public offerings and mergers & acquisitions...

Theory of Asset Pricing pot

... 7.b When given the choice of asset A versus asset B, an individual chooses asset A This same individual, when given the choice between asset C and asset D, chooses asset D Could this individuals ... However, in the eld of nancial economics, a somewhat dierent denition is often employed Financial economists seek to understand how the risk of an assets payo determines the assets rate of return In ... dierence in their future payos With the exception of assets that pay a risk-free return, assets payos are random Thus, a theory of the demand for assets needs to specify investors preferences over...

FM11 Ch 11 Cash Flow Estimation and Risk Analysis

... capital = 10% 11 - Incremental Cash Flow for a Project  Project’s incremental cash flow is: Corporate cash flow with the project Minus Corporate cash flow without the project 11 - Should you ... judgments 11 - 28 What three types of risk are relevant in capital budgeting?  Stand-alone risk  Corporate risk  Market (or beta) risk 11 - 29 How is each type of risk measured, and how they ...  Cash flow = $25-$3.28=$21.72 11 - 20 Net Cash Flows for Years 1-3 Year Year Year Init Cost -$240,000 0 Op CF $106,680 $120,450 NOWC CF -$30,000 -$900 -$927 Salvage CF 0 11 - 21 Net Cash Flows...

Capital markets and portfolio theory (2000)

... 94 REFERENCES 95 iv PART I Standard (One Period) Portfolio Theory Chapter Portfolio Choices Chapter Portfolio Choices 1.A Framework and notations In all the following we consider ... instance and M Any ecient portfolio writes: Ă Â x = b àr1 The tangent portfolio (m,M ) is: Ă Â m = bM àr1 bM = Ă Â 1 àr1 Proof 1, 2, 3, are standard and easy to prove Let us proove and 6: x ... expectations and horizon) and would they all follow the mean-variance criteria, they would all hold combinations of and M and the tangent portfolio M would necessarily coincide with the market portfolio...

Risk and Portfolio Analysis doc

... set Take Œ0; 1 and two points x and y such that gk x/ Ä gk;0 and gk y/ Ä gk;0 Then gk x C /y/ Ä gk x/ C /gk y/ Ä gk;0 ; H Hult et al., Risk and Portfolio Analysis: Principles and Methods, Springer ... investment and risk management decisions, ﬁnancial institutions and insurance companies are required to quantify and report their risks Financial institutions and insurance companies have assets and ... to take a coherent and pragmatic approach to investment and risk management integrated in a portfolio analysis framework The mathematical ﬁelds of probability, statistics, and optimization form...

Capital Markets and Portfolio Theory 2000 pot

... Capital Markets and Portfolio Theory Roland Portait From the class notes taken by Peng Cheng Novembre 2000 Table of Contents Table of Contents PART I Standard (One Period) Portfolio Theory ... 94 REFERENCES 95 iv PART I Standard (One Period) Portfolio Theory Chapter Portfolio Choices Chapter Portfolio Choices 1.A Framework and notations In all the following we consider ... instance and M Any ecient portfolio writes: Ă Â x = b àr1 The tangent portfolio (m,M ) is: Ă Â m = bM àr1 bM = Ă Â 1 àr1 Proof 1, 2, 3, are standard and easy to prove Let us proove and 6: x...

Portfolio Theory and Investment Analysis

... Robert Alan Hill Portfolio Theory and Investment Analysis Download free eBooks at bookboon.com Portfolio Theory and Investment Analysis 2nd edition © 2014 Robert Alan Hill ... Multi-Asset Portfolio 37 3.5: he Optimum Portfolio 40 Summary and Conclusions 43 Selected References 45 he Market Portfolio 46 Introduction 46 4.1 he Market Portfolio and Tobin’s heorem 47 4.2 he CML and ... Analysis Contents he Optimum Portfolio 29 Introduction 29 3.1 he Mathematics of Portfolio Risk 30 3.2 Risk Minimisation and the Two-Asset Portfolio 33 3.3 he Minimum Variance of a Two-Asset Portfolio...

Portfolio Theory and Financial Analyses Exercises

... Robert Alan Hill Portfolio Theory & Financial Analyses Exercises Download free eBooks at bookboon.com Portfolio Theory & Financial Analyses: Exercises 1st edition © 2010 Robert ... Theory & Financial Analyses: Exercises Contents Exercise 2.3: Correlation and Risk Reduction Summary and Conclusions 22 he Optimum Portfolio 23 Introduction 23 Exercise 3.1: Two-Asset Portfolio Risk ... specialists and contribute to inluencing our future Come and join us in reinventing light every day Light is OSRAM Download free eBooks at bookboon.com Click on the ad to read more Portfolio Theory & Financial...

FM11 Ch 28 Advanced Issues in Cash Management and Inventory Control

... ordering costs increase  If Q > EOQ, total carrying costs increase, but ordering costs decrease 28 - 15 Suppose delivery takes weeks Assuming certainty in delivery and usage, at what inventory ... if you view cash as an operating assets, just like inventory  In this view, cash has a carrying cost, which is the opportunity cost for investing the funds, and an order cost, which is the cost ... liquidating marketable securities and transferring the money to a checking account 28 - 24  C = cash raised each time by selling securities or borrowing  r = opportunity cost of holding cash ...

FM11 Ch 25 Mergers, LBOs, Divestitures, and Holding Companies

... losses)(More ) 25 -  Break-up value: Assets would be more valuable if broken up and sold to other companies 25 - What are some questionable reasons for mergers?  Diversification  Purchase of assets ... rate would change the discount rate 25 - 26 Assume the target company has 20 million shares outstanding The stock last traded at $11 per share, which reflects the target’s value on a stand-alone ... in short term won’t change (if they did, it is easy to incorporate that difference)  Long term rsLwill change, so horizon WACC will change, so horizon value will change 25 - 33 New WACC Calculation...

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