財務(wù)管理英文Cha課件

1、0Chapter 5Copyright 2001 Prentice-Hall, Inc.1Chapter ObjectiveslDefining Risk and ReturnlCalculate the expected return and risk (standard deviation) of both a single asset and a portfolio.lDistinguish between systematic and non-systematic risk.lExplain the principle of diversification.lExplain the c

2、apital asset pricing model (CAPM).lExplain the security market line (SML).Copyright 2001 Prentice-Hall, Inc.2October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.-

3、Mark Twain Copyright 2001 Prentice-Hall, Inc.3lIncome received on an investment plus any , usually expressed as a percent of the of the investment.Dt + (Pt - Pt-1 )R =Defining ReturnCopyright 2001 Prentice-Hall, Inc.4 Example The stock price for Stock A was $10 per share 1 year ago. The stock is cur

4、rently trading at $9.50 per share, and shareholders just received a $1 dividend. What return was earned over the past year? $1.00 + ($9.50 - $10.00 )R = Return ExampleCopyright 2001 Prentice-Hall, Inc.5lMost decisions involve a gamblelProbabilities can be known or unknown, and outcomes can be known

5、or unknownlRisk - exists when:Possible outcomes and probabilities are knowne.g., Roulette Wheel or DicelUncertainty - exists when:Possible outcomes or probabilities are unknowne.g., Drilling for Oil in an unknown fieldRisk and UncertaintyCopyright 2001 Prentice-Hall, Inc.6Concepts of RisklRisk-The v

6、ariability of returns from those that are expected.lWhen probabilities are known, we can analyze risk using probability distributions.Assign a probability to each state of nature, and be exhaustive, so thatpi = 1Copyright 2001 Prentice-Hall, Inc.7Expected Return & VariancelExpected return - the

7、weighted average of the distribution of possible returns in the future.lVariance of returns - a measure of the dispersion of the distribution of possible returns.lRational investors like return and dislike risk.lThe quantification of risk and return is a crucial aspect of modern finance - need to un

8、derstand the relationship between risk and return in order to make a “good” investment.Copyright 2001 Prentice-Hall, Inc.8Discrete vs. Continuous Distributions Discrete Continuous00.0050.010.0150.020.0250.030.035-50%-41%-32%-23%-14%-5%4%13%22%31%40%49%58%67%Copyright 2001 Prentice-Hall, Inc.9 - R is

9、 the expected return for the asset, - Ri is the return for the ith possibility, - Pi is the probability of that return occurring, - n is the total number of possibilities.ni=1R = ( Ri )( Pi )Determining Expected Return (Discrete Dist.)Copyright 2001 Prentice-Hall, Inc.10lStandard Deviation, s, is a

10、statistical measure of the variability of a distribution around its mean.lIt is the square root of variance.lNote, this is for a discrete distribution.Determining Standard Deviation (Risk Measure)ni=1 = ( Ri - R )2( Pi )Copyright 2001 Prentice-Hall, Inc.11Example: Calculating Expected ReturnState of

11、EconomyPiProbabilityof State iRiReturn inState iBoom0.2535%Normal0.5015%Recession0.25-5% 15% 5%- 0.25 15% 0.50 35% 0.25 return ExpectedCopyright 2001 Prentice-Hall, Inc.12Example: Calculating VarianceState ofEconomy(Ri R)(Ri R)2Pi x (Ri R)2Boom0.200.040.01Normal000Recession-0.200.040.01s2=0.0214.14%

12、or 0.1414 0.02 sCopyright 2001 Prentice-Hall, Inc.13Example: Expected Return & VarianceState ofEconomyPiReturn onAsset AReturn onAsset BBoom0.4030%-5%Bust0.60-10%25% 13% 0.13 0.25 0.60 0.05- 0.40 RE6% 0.06 0.10- 0.60 0.30 0.40 REBAExpected Returns:Copyright 2001 Prentice-Hall, Inc.14Example: Exp

13、ected Return & Variance0.0216 0.13 - 0.25 0.60 0.13 - 0.05- 0.40 RVar0.0384 0.06 - 0.10- 0.60 0.06 - 0.30 0.40 RVar22B22A14.7% 0.147 0.0216 R19.6% 0.196 0.0384 RBAssVariances:Standard Deviations:Copyright 2001 Prentice-Hall, Inc.15Example: Portfolio Return & VarianceState ofEconomyPiRARBRpBo

14、om0.4030%-5%12.5%Bust0.60-10%25%7.5%Assume 50% of portfolio in asset A and 50% in asset B.9.5%or 0.095 0.075 0.60 0.125 0.40 REpCopyright 2001 Prentice-Hall, Inc.16Example: Portfolio Return & VariancelVar(Rp) (0.50 x Var(RA) + (0.50 x Var(RB).lBy combining assets in a portfolio, the risks faced

15、by the investor can significantly change.2.45%or 0.0245 0.0006 R0.0006 0.095 - 0.075 0.60 0.095 - 0.125 0.40 RVarp22psCopyright 2001 Prentice-Hall, Inc.17 R = ( Ri ) / ( n )-R is the expected return for the asset, -Ri is the return for the ith observation,-n is the total number of observations.ni=1D

16、etermining Expected Return (Continuous Dist.)Copyright 2001 Prentice-Hall, Inc.18ni=1Determining Standard Deviation (Risk Measure) = ( Ri - R )2 ( n )lNote, this is for a continuous distribution where the distribution is for a population. R represents the population mean in this example.Copyright 20

17、01 Prentice-Hall, Inc.19lCoefficient of Variationstandard deviationmeanCoefficient of VariationCV = / lC.V. is a measure of risk per dollar of expected return. It is a measure of RELATIVE risk.lCoefficient of Variation is good for comparing projects of different sizes.Copyright 2001 Prentice-Hall, I

18、nc.20Example of Two GamblesA: Prob X .5 10 .5 20 R = 15 , = 5 , CV = 5 / 15 = .333B: Prob X .5 20 .5 40 R = 30 ,= 10 , CV = 10 / 30 = .333Copyright 2001 Prentice-Hall, Inc.21Continuous Probability DistributionslExpected valued is the mode for symmetric distributions.RARBABA is riskier, but it has a

19、higher expected valueCopyright 2001 Prentice-Hall, Inc.22lCertainty Equivalent (CE) is the amount of cash someone would require with certainty at a point in time to make the individual indifferent between that certain amount and an amount expected to be received with risk at the same point in time.l

20、Investors view of risk Risk Averse Risk Neutral Risk SeekingRisk AttitudesCopyright 2001 Prentice-Hall, Inc.23lRisk Preference Certainty equivalent Expected valuelRisk Indifference Certainty equivalent = Expected valuelRisk Aversion Certainty equivalent Expected valuelMost individuals are Risk Avers

21、e.Risk AttitudesCopyright 2001 Prentice-Hall, Inc.24Risk Attitude Example Example You have the choice between (1) a guaranteed dollar reward or (2) a coin-flip gamble of $100,000 (50% chance) or $0 (50% chance). What are the Risk Attitude tendencies of each?a. Mary requires a guaranteed $25,000, or

22、more, to call off the gamble.b. Raleigh is just as happy to take $50,000 or take the risky gamble.c. Shannon requires at least $52,000 to call off the gamble.Copyright 2001 Prentice-Hall, Inc.25? The expected value of the gamble is $50,000.?Mary shows risk aversion because her “certainty equivalent”

23、 the expected value of the gambleRisk Attitude ExampleCopyright 2001 Prentice-Hall, Inc.26Risk and Changing Economic Conditions lInflation Risk-Inflation increases and the return on your investment does not keep pace.lBusiness Cycle Risk-Your Investments return fluctuates in tandem with the overall

24、business cycle.lInterest-Rate Risk-Newly-Issued bonds offer higher rates than your bonds.Copyright 2001 Prentice-Hall, Inc.27Risk and Changing Conditions of the Security IssuerlManagement Risk-The company in which you invested has poor managerslBusiness Risk-Risks associated with a companys product/

25、service lines.lFinancial Risk-The risk of insolvency because the company has borrowed too much.Copyright 2001 Prentice-Hall, Inc.28A Portfolio lA Portfolio is simply a group of assets held at the same time.StocksBondsBillsM“Dont put all your eggs in one basket. ”Copyright 2001 Prentice-Hall, Inc.29D

26、iversificationlDiversification lowers investment risk.lIt accomplishes this goal because asset returns are Poorly correlated.lDiversification is Not effective if asset returns are strongly, positively correlated.lThe return correlations among stocks, bonds, and bills are low; Holding these investmen

27、ts in a portfolio is effective. Copyright 2001 Prentice-Hall, Inc.30l Combining securities that are not perfectly, positively correlated reduces risk.INVESTMENT RETURNTIMETIMETIMESECURITY ESECURITY FCombinationE and FDiversification and the Correlation CoefficientCopyright 2001 Prentice-Hall, Inc.31

28、DiversificationlThe process of spreading investments across different assets, industries and countries to reduce risk.lTotal risk = systematic risk + non-systematic risklNon-systematic risk can be eliminated by diversification; systematic risk affects all assets and cannot be diversified away.Copyri

29、ght 2001 Prentice-Hall, Inc.32lSystematic Risk is the variability of return on stocks or portfolios associated with changes in return on the market as a whole.lUnsystematic Risk is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through di

30、versification.Total Risk = Systematic Risk +Unsystematic RiskTotal Risk = Systematic Risk + Unsystematic RiskCopyright 2001 Prentice-Hall, Inc.33TotalRiskUnsystematic riskSystematic riskSTD DEV OF PORTFOLIO RETURNNUMBER OF SECURITIES IN THE PORTFOLIOl Factors such as changes in nations economy, tax

31、reform by the Congress,or a change in the world situation.Systematic Risk Copyright 2001 Prentice-Hall, Inc.34TotalRiskUnsystematic riskSystematic riskSTD DEV OF PORTFOLIO RETURNNUMBER OF SECURITIES IN THE PORTFOLIOl Factors unique to a particular companyor industry. For example, the death of akey e

32、xecutive or loss of a governmentaldefense contract.Unsystematic RiskCopyright 2001 Prentice-Hall, Inc.351.Capital markets are efficient.2.Homogeneous investor expectations over a given period.3.Risk-free asset return is certain (use short- to intermediate-term Treasuries as a proxy).4.Market portfol

33、io contains only systematic risk (use S&P 500 Index or similar as a proxy).CAPM AssumptionsCopyright 2001 Prentice-Hall, Inc.36The Capital Asset Pricing Model (CAPM)lCAPM is a model that describes the relationship between risk and expected (required) return; lWhat determines an assets expected r

34、eturn?The risk-free rate - the pure time value of money.The market risk premium - the reward for bearing systematic risk.The beta coefficient - a measure of the amount of systematic risk present in a particular asset.ifMfi R- RE R R ECAPM Copyright 2001 Prentice-Hall, Inc.37Expected Return on an Ind

35、ividual SecuritylThis formula is called the Capital Asset Pricing Model (CAPM)R)(FMiFiRRR-Assume i = 0, then the expected return is RF.Assume i = 1, thenMiRR Expected return on a security=Risk-free rate+Beta of the securityMarket risk premiumCopyright 2001 Prentice-Hall, Inc.38lAn index of systemati

36、c risk.lIt measures the sensitivity of a stocks returns to changes in returns on the market portfolio.lThe beta for a portfolio is simply a weighted average of the individual stock betas in the portfolio.What is Beta()?Copyright 2001 Prentice-Hall, Inc.39Stock Betas.31Heinz.H.J.41ExxonMobil.57Pfizer

37、.66sMcDonald.67PepsiCo1.00Airlines Delta1.05Ford1.18GE2.14erDellComput3.30AmazonBetaStockBCopyright 2001 Prentice-Hall, Inc.40The Efficient Set for Many SecuritieslConsider a world with many risky assets; we can still identify the opportunity set of risk-return combinations of various portfolios.ret

38、urns sPIndividual AssetsCopyright 2001 Prentice-Hall, Inc.41The Efficient Set for Many SecuritieslGiven the opportunity set we can identify the minimum variance portfolio.returns sPminimum variance portfolioIndividual AssetsCopyright 2001 Prentice-Hall, Inc.42lThe section of the opportunity set abov

39、e the minimum variance portfolio is the efficient frontier.The Efficient Set for Many Securitiesreturns sPminimum variance portfolioefficient frontierIndividual AssetsCopyright 2001 Prentice-Hall, Inc.43Optimal Risky Portfolio with a Risk-Free Asset 100% bonds100% stocksrfreturns slIn addition to st

40、ocks and bonds, consider a world that also has risk-free securities like T-bills.Copyright 2001 Prentice-Hall, Inc.44Capital Market Line (CML)100% bonds100% stocksrfreturns sBalanced fundCMLlNow investors can allocate their money across the T-bills and a balanced mutual fundCopyright 2001 Prentice-H

41、all, Inc.45Market Equilibriumreturns sPefficient frontierrfMCMLlWith the capital allocation line identified, all investors choose a point along the linesome combination of the risk-free asset and the market portfolio M. In a world with homogeneous expectations, M is the same for all investors.Copyri

42、ght 2001 Prentice-Hall, Inc.46Market Equilibrium100% bonds100% stocksrfreturns sOptimal Risky PortfolioCMLlAll investors have the same CML because they all have the same optimal risky portfolio given the risk-free rate. Copyright 2001 Prentice-Hall, Inc.47Estimation of BetalTheoretically, the calcul

43、ation of beta is straightforward:lProblemsBetas may vary over time.The sample size may be inadequate.Betas are influenced by changing financial leverage and business risk.lSolutionsProblems 1 and 2 (above) can be moderated by more sophisticated statistical techniques.Problem 3 can be lessened by adj

44、usting for changes in business and financial risk.Look at average beta estimates of comparable firms in the industry.22)(),(MiMMiRVarRRCovCopyright 2001 Prentice-Hall, Inc.48EXCESS RETURNON STOCKEXCESS RETURNON MARKET PORTFOLIOBeta =RiseRunNarrower spreadis higher correlationCharacteristic LineChara

45、cteristic LineCopyright 2001 Prentice-Hall, Inc.49Market IndexeslDow Jones Industrial Average (The Dow) Value of a portfolio holding one share in each of 30 large industrial firms.lStandard & Poors Composite Index (The S&P 500) Value of a portfolio holding shares in 500 firms. Holdings are p

46、roportional to the number of shares in the issues.Copyright 2001 Prentice-Hall, Inc.50EXCESS RETURNON STOCKEXCESS RETURNON MARKET PORTFOLIOBeta 1(aggressive)Each has a different slope.Characteristic Lines and Different BetasCopyright 2001 Prentice-Hall, Inc.51-Rj is the required rate of return for s

47、tock j,-Rf is the risk-free rate of return,-j is the beta of stock j (measures systematic risk of stock j),-RM is the expected return for the market portfolio. = + j( - )Security Market Line (SML)Copyright 2001 Prentice-Hall, Inc.52 = Systematic Risk (Beta)RiskPremiumRisk-freeReturnSecurity Market L

48、inelSecurity Market Line - The graphic representation of the CAPM.Copyright 2001 Prentice-Hall, Inc.53Determination of the Required Rate of ReturnCopyright 2001 Prentice-Hall, Inc.54 = + j( - ) = + ( - ) = BWs Required Rate of Return? The required rate of return exceeds the market rate of return as

49、BWs beta exceeds the market beta (1.0).Copyright 2001 Prentice-Hall, Inc.55 Lisa Miller at BW is also attempting to determine the of the stock. She is using the constant growth model. Lisa estimates that the will be and that BW will at a constant rate of . The stock is currently selling for $15. Wha

50、t is the of the stock? Is the stock or ?Determination of the Intrinsic Value of BWCopyright 2001 Prentice-Hall, Inc.56? The stock is OVERVALUED as the market price ($15) exceeds the intrinsic value ($10). - IntrinsicValue=Determination of the Intrinsic Value of BWCopyright 2001 Prentice-Hall, Inc.57

51、Systematic Risk (Beta)RfRequired ReturnDirection ofMovementDirection ofMovementStock Y (Overpriced)Stock X (Underpriced)Security Market LineCopyright 2001 Prentice-Hall, Inc.58lThese anomalies have presented serious challenges to the CAPM theory. Small-firm Effect Price / Earnings Effect January Eff

52、ectDetermination of the Required Rate of ReturnCopyright 2001 Prentice-Hall, Inc.59History of Efficiency Market TheorylBachelier (1900) lFama (1965)lRoberts (1967)lEvent studiesFama, Fisher, Jensen, and Roll (1969): 1st event study lTheory papers based on Efficiency Market TheoryModigliani and Mille

53、r (capital structure) Sharpe and Lintner (CAPM) Black and Scholes (1973) lRecent attackBehavior financeCopyright 2001 Prentice-Hall, Inc.60Efficiency Market TheorylFamas definition of an “efficient market”“a market in which prices always fully reflects available information.” Copyright 2001 Prentice

54、-Hall, Inc.61Efficiency Market Theory (cont.)lThe efficient markets hypothesis holds that a market is efficient if it is impossible to make economic profits by trading on available information. lEfficient market hypothesis rely heavily on the foundation of economic theory rational and self-serving i

55、nvestor behavior. Copyright 2001 Prentice-Hall, Inc.62 Implications of Efficient Capital MarketslThe EMH has implications for investors and firms.Since information is reflected in security prices quickly, knowing information when it is released does an investor no good.Firms should expect to receive

56、 the fair value for securities that they sell. Firms cannot profit from fooling investors in an efficient market.Copyright 2001 Prentice-Hall, Inc.63Relationship among Three Different Information SetsAll informationrelevant to a stockInformation setof publicly availableinformationInformationset ofpa

57、st pricesCopyright 2001 Prentice-Hall, Inc.64lWeak-form efficiency Security prices reflect all information found in past prices and volume.lSemi-strong-form efficiency Security prices reflect all publicly available information.lStrong-form efficiency Security prices reflect all informationpublic and

58、 private.Three forms of the efficient market theoryCopyright 2001 Prentice-Hall, Inc.65lWeak-Form Efficiency:Market prices reflect all information contained in the history of past prices.Since stock prices only respond to new information, which by definition arrives randomly, stock prices are said t

59、o follow a random walk.Returns are unpredictable from past returns or other past variables, and the best forecast of the return is its historical mean.Weak-Form EfficiencyCopyright 2001 Prentice-Hall, Inc.66lSemi-strong-form efficiency:Market prices reflect all publicly available information. lPublicly available information includes:Historical price and volume informationPublished accounting statements. In