study material on finance 29

May 14th, 2015
Studypool Tutor
Adelphi University
Price: $20 USD

Tutor description

At the end of the lesson, students should be able to: calculate expected returns

Word Count: 1696
Showing Page: 1/40
Taylors UniversityDual Degree ProgramIntroductionto FinanceTopic 8Risk & Return1Acknowledgement Ross et al, 2008, Essentials of Corporate Finance, 6 th Ed, McGraw-Hill1-211-2Learning OutcomesAt the end of the lesson, students should beable to:calculate expected returnsexplain the impact of diversificationdescribe systematic risk principleexplain security market linediscuss the risk-return trade-off21-311-3Chapter Outline Expected Returns and Variances Portfolios Announcements, Surprises, and ExpectedReturns Risk: Systematic and Unsystematic Diversification and Portfolio Risk Systematic Risk and Beta The Security Market Line (SML) The SML and the Cost of Capital: A Preview31-411-4Expected Returns Expected returns are based on theprobabilities of possible outcomes In this context, expected meansaverage if the process is repeatedmany times The expected return does not evenhave to be a possible returnnE ( R ) pi Rii 141-511-5Example: Expected Returns Suppose you have predicted the following returns for stocksC and T in three possible states of nature. What are theexpected returns?StateProbabilityBoom0.3Normal0.5Recession???C0.150.100.02T0.250.200.01 E(RC)= .3(.15) + .5(.10) + .2(.02) = .099 = 9.9% E(RT) = .3(.25) + .5(.20) + .2(.01) = .177 = 17.7%Refer Notes for Risk Premium5Variance and StandardDe

Review from student

Studypool Student
" The best tutor out there!!!! "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1821 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors