CFI 12-1 Revision - sanjukta brahma PDF

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sanjukta brahma...

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01/05/21

Corporate Finance and Investment

12/1

Revision 1. Markowitz theory 2. Expected return and SD a. Expected return b. Variance or measure of dispersion c. Standard Deviation Example of expected return for Ace plc

Event Boom Growth Recession

SD for ace plc Probability Pi 0.2 0.6 0.2

Probability Pi 0.2 0.6 0.2

Return Ri

Return Ri +20 +5 -10 Expected Return

Expected return

PixRi 4 3 -2 5%

Deviation

Covariance and correlation - Week 2 slides Individual Securities - Expected return - Variance and SD - Covariance and correlation The expected return on a portfolio is simply a Diversification 2 sources of uncertantity - macroeconomic - firm-specific factors

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01/05/21

Corporate Finance and Investment

12/1

Systematic Risk

Total Risk Unsystem atic Risk CAPM – Capital Asset Pricing Model

beta is a measure of risk in CAPM all of us will eliminate macroeconomic risk **look up each company and their beta eg on google finance**

Aardvark 15.0% = 3% + 1.5 x 8.0% Zebra 8.6% = 3% + 0.7 x 8.0% 2

01/05/21

Corporate Finance and Investment

12/1

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