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# 01. Fundamentals of Risk and Return.pptx

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# 01. Fundamentals of Risk and Return.pptx

Fundamentals of Risk and Return

Fundamentals of Risk and Return

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### 01. Fundamentals of Risk and Return.pptx

1. 1. Here is where your presentation begins Risk and Rate of Return
2. 2. CONTENTS OF THIS REPORT ● FUNDAMENTALS OF RISK AND RETURN ● MEASUREMENT OF RISK AND RETURN ● RISK MEASUREMENT MODEL ● RISK OF A SINGLE ASSET ● RISK OF PORTFOLIO ASSET ● INVESTMENT MODELS: CAPITAL ASSET PRICING MODEL (CAPM)
3. 3. 01 Define and explain the concept ,nature, purpose, and classification of risk and return 02 Solve and compute for the risk and returns of an asset using portfolio return, standard deviation, correlation and diversification. 03 Understand the risk assessment and measurement of a single asset 04 Compute and solve the required rate of return using the Capital Asset Pricing Model (CAPM) LEARNING OBJECTIVES vv 05 Apply the concept of risk and return on making investment decisions on single and portfolio of assets
4. 4. 01. Fundamentals of Risk and Return
5. 5. In most important business decisions there are two key financial considerations: risk and return INTRODUCTION
6. 6. “Higher returns entail higher risks”
7. 7. WHAT IS RISK ? variability of returns associated with a given asset
8. 8. Treasury Bonds Low Risk Guaranteed by the government
9. 9. Stocks High Risk Many Factors
10. 10. Return Defined Return represents the total gain or loss on an investment The most basic way to calculate return is as follows:
11. 11. Illustration The investment manager of Rico Group of Companies is evaluating the rates of return of two investments, Investment A and Investment B. Both investments were acquired during 2019 at the price of Php100,000 and Php150,000 for A and B respectively. During 2020, the investments generated cash inflows of Php25,000 and Php47,500. By the end of 2020 the valuation of investment A is Php115,000 and that of investment B is Php170,000. What are the rates of return for these two investments?
12. 12. r = 25,000+(115,000−100,000) 100,000 = 40% Investment A t t Investment B r = 47,500+ 170,000−150,000 150,000 = 45%
13. 13. Investor who prefer less risky over more risky investments Chooses investment based solely on their expected returns disregarding the risk Risk Averse Risk Nuetral Investors who prefer investment with higher risk and may sacrifice some expected return Risk Seeking Risk Preferences
14. 14. CREDITS: This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik and illustrations by Stories Thank You for Listening