美国注册管理会计师CMAP2_S4

S4: Investment Risk & Portfolio Mgmt
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Risk and Return
1. Rate of Return
c) Relationship between risk and return
Whether the expected return on an investment is sufficient to entice an investor depends on
Standard deviation ① It gives an exact value for the tightness of the distribution and the riskiness of the investment. Standard deviation = ∑(Variance 2 × Probability) ② A large standard deviation reflects a broadly dispersed probability distribution, meaning the range of possible returns is wide. The greater the standard deviation, the riskier the investment.
It is the risk faced by all firms. ① Changes in the economy as a whole, such as the business cycle, affect all players in the market, which is why equity prices so often move together. ② It is sometimes referred to as undiversifiable risk since all investment securities are affected, this risk cannot be offset through portfolio diversification.
d) Calculating expected return
Coefficient of variation Example: Standard deviation ÷ Expected rate of return X Co. Y Co. 6.337 8.831 (0.75%) 1.075% = Coefficient of variation 845.0 821.5
① Risk ② Risks and returns of alternative investments, and ③ Investor’s attitude toward risk.
Risk averse Utility of a gain < Disutility of a loss of the same amount. Risk neutral Utility of a gain = Disutility of a loss of the same amount. Risk seeking Utility of a gain > Disutility of a loss of the same amount.
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
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Risk and Return
1. Rate of Return
d) Calculating expected return
Standard deviation Example: Expected Rate of return – rate of return = Variance 10.5% 4.0% (6.5%) (8.0%) (7.5%) (7.5%) (7.5%) (7.5%) 11.25% 4.75% (5.75%) (7.25%) Variance squared 1.266% 0.266% 0.331% 0.526% Weighted Probability = squared variances
1.60%
(2.60%) (0.80%)
()
Expected rate of return
(0.75%)
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
A
Risk and Return
1. Rate of Return
d) Calculating expected return
Rate of return = $ Return on investment ÷ $ invested × 100%
Example: An investor paid $100,000 for an investment that return $112,000. Solution: Rate of return = $12,000 ÷ $100,000 × 100% = 12%
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Copyright 高才国际教育集团
S4
Investment Risk & Portfolio Mgmt
A. Risk and Return
B. Managing Financial Risk
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
A
Risk and Return
1. Rate of Return
d) Calculating expected return
Expected rate of return Example: Possible rate of return 10.5% 4.0% (6.5%) × Probability 10% 40% 40% 10% = Weighted average 1.05%
It is the risk inherent in a particular investment security. ① It is associated with a specific investee’s operations, such as: Industry Products Patents Customer loyalty, etc. It is the risk that can be potentially eliminated by diversification. ① In principle, it should continue to decrease as the number of different securities held increases.
A. Risk and Return
S4: Investment Risk & Portfolio Mgmt
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Risk and Return
1. Rate of Return
a) Return
Absolute $ amount
It is the amount received by an investor as compensation for taking on the risk of the investment. Normally, higher risk, higher return. Formula
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
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Risk and Return
1. Rate of Return
d) Calculating expected return
Expected rate of return ① It is determined using an expected value calculation. Expected rate of return = ∑(Possible rate of return × Probability)
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Risk and Return
1. Rate of Return
d) Calculating expected return
Coefficient of variation
① It is useful when the rates of return and standard deviations of two investments differs. ② It measures the risk per unit of return.
Therefore, compared to Y Co., X Co has a lower expected rate of return, but also a tighter range of possible returns. When compared on a per-unit-of return basis, X Co is the riskier investment.
S4: Investment Risk & Portfolio Mgmt
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Copyright 高才国际教育集团
A
Risk and Return
2. Two Basic Types of Investment Risk