Lec1

TheInvestmentSetting為了彌補(bǔ)50%的退步，我們往往需要付出100%的努力---股票市場(chǎng)啟示錄1TheInvestmentSettinga)explaintheconceptofrequiredrateofreturnanddiscussthecomponentsofit.b)differentiatebetweentherealandthenominalrisk-freerateofreturnc)explaintheriskpremiumandtheassociatedfundamentalsourcesofrisk;d)definethesecuritymarketlineanddiscussthefactorsthatcausemovementsalong,changesintheslopeof,andshiftsofthesecuritymarketline.2WhyDoIndividualsInvest?

Bysavingmoney(insteadofspendingit),individualstradeoffpresentconsumptionforalargerfutureconsumption.3LOSa:conceptofrequiredrateofreturnandcomponentsofaninvestor'srequiredrateofreturn.Therealriskfreerateofinterest:Therealriskfreerateofinterestisdeterminedbythesupplyanddemandforfundsintheeconomy.Theinflationpremiumisanadjustmenttotherealriskfreeratetocompensateinvestorsforexpectedchangesinthepriceindexesandmoneymarketconditionsbeingtightenedoreasedduetoinflationaryexpectations.Theriskpremiumiswhatinvestorsdemandfortheuncertaintyassociatedwithaninvestment.4HowDoWeMeasureTheRateOfReturnOnAnInvestment?Thepurerateofinterestistheexchangeratebetweenfutureconsumptionandpresentconsumption.Marketforcesdeterminethisrate.5

People’swillingnesstopaythedifferenceforborrowingtodayandtheirdesiretoreceiveasurplusontheirsavingsgiverisetoaninterestratereferredtoasthepuretimevalueofmoney.HowDoWeMeasureTheRateOfReturnOnAnInvestment?6

Ifthefuturepaymentwillbediminishedinvaluebecauseofinflation,thentheinvestorwilldemandaninterestratehigherthanthepuretimevalueofmoneytoalsocovertheexpectedinflationexpense.

HowDoWeMeasureTheRateOfReturnOnAnInvestment?7

Ifthefuturepaymentfromtheinvestmentisnotcertain,theinvestorwilldemandaninterestratethatexceedsthepuretimevalueofmoneyplustheinflationratetoprovideariskpremiumtocovertheinvestmentrisk.HowDoWeMeasureTheRateOfReturnOnAnInvestment?8Measuresof

HistoricalRatesofReturnHoldingPeriodReturnHoldingPeriodYieldHPY=HPR-11.10-1=0.10=10%9AnnualHoldingPeriodReturnAnnualHPR=HPR1/nwheren=numberofyearsinvestmentisheldAnnualHoldingPeriodYieldAnnualHPY=AnnualHPR-1Measuresof

HistoricalRatesofReturn10Measuresof

HistoricalRatesofReturnArithmeticMean1.411Measuresof

HistoricalRatesofReturnGeometricMean1.512APortfolioofInvestments

ThemeanhistoricalrateofreturnforaportfolioofinvestmentsismeasuredastheweightedaverageoftheHPYsfortheindividualinvestmentsintheportfolio.13ComputationofHolding

PeriodYieldforaPortfoliotab1.114ExpectedRatesofReturnRiskisuncertaintythataninvestmentwillearnitsexpectedrateofreturnProbabilityisthelikelihoodofanoutcome15ExpectedRatesofReturn1.616RiskAversion

Theassumptionthatmostinvestorswillchoosetheleastriskyalternative,allelsebeingequalandthattheywillnotacceptadditionalriskunlesstheyarecompensatedintheformofhigherreturn

17

ProbabilityDistributionsRisk-freeInvestmentExhibit1.118

ProbabilityDistributionsRiskyInvestmentwith3PossibleReturnsExhibit1.219

ProbabilityDistributionsRiskyinvestmentwithtenpossibleratesofreturnExhibit1.320MeasuringtheRiskof

ExpectedRatesofReturn1.721MeasuringtheRiskof

ExpectedRatesofReturnStandardDeviationisthesquarerootofthevariance1.822MeasuringtheRiskof

ExpectedRatesofReturn

Coefficientofvariation(CV)ameasureofrelativevariabilitythatindicatesriskperunitofreturn

StandardDeviationofReturnsExpectedRateofReturns1.923MeasuringtheRiskof

HistoricalRatesofReturnvarianceoftheseriesholdingperiodyieldduringperiodIexpectedvalueoftheHPYthatisequaltothearithmeticmeanoftheseriesthenumberofobservations1.1024LOSb:real,nominalrisk-freerateofreturnandcomputationofbothreturnmeasuresrealrisk-freerateofinterestisthepricechargedfortheexchangebetweencurrentgoodsandfuturegoodsbyinvestorsintheeconomy.Theinflationpremiumisanadjustmenttotherealrisk-freeratetocompensateinvestorsforexpectedchangesinthepriceindexesandmoneymarketconditionsbeingtightenedoreasedduetoinflationaryexpectations.25LOSb:real,nominalrisk-freerateofreturnandcomputationofbothreturnmeasuresTheadjustmentis:nominalriskfreerate=(1+realriskfreerate)(1+inflationrate)Fortheexam,youwillwanttoknow:Thenominalriskfreerateisapproximatedby:Realriskfreerate+Inflationrate.Therealriskfreerate=[(1+nominalriskfreerate)/(1+inflationrate)]-126LOSc:Explaintheriskpremiumandtheassociatedfundamentalsourcesofrisk.riskpremiumiswhatinvestorsdemandfortheuncertaintyassociatedwithaninvestment.TheriskpremiumaddressesthefollowingtypesofriskexposureBusinessriskFinancialriskLiquidityriskExchangerateriskCountryrisk27BusinessRiskUncertaintyofincomeflowscausedbythenatureofafirm’sbusinessSalesvolatilityandoperatingleveragedeterminethelevelofbusinessrisk.28FinancialRiskUncertaintycausedbytheuseofdebtfinancing.Borrowingrequiresfixedpaymentswhichmustbepaidaheadofpaymentstostockholders.Theuseofdebtincreasesuncertaintyofstockholderincomeandcausesanincreaseinthestock’sriskpremium.29LiquidityRiskUncertaintyisintroducedbythesecondarymarketforaninvestment.Howlongwillittaketoconvertaninvestmentintocash?Howcertainisthepricethatwillbereceived?30ExchangeRateRiskUncertaintyofreturnisintroducedbyacquiringsecuritiesdenominatedinacurrencydifferentfromthatoftheinvestor.Changesinexchangeratesaffecttheinvestorsreturnwhenconvertinganinvestmentbackintothe“home”currency.31CountryRiskPoliticalriskistheuncertaintyofreturnscausedbythepossibilityofamajorchangeinthepoliticaloreconomicenvironmentinacountry.Individualswhoinvestincountriesthathaveunstablepolitical-economicsystemsmustincludeacountryrisk-premiumwhendeterminingtheirrequiredrateofreturn32RiskPremiumRiskpremiumbyfundamentalriskf(BusinessRisk,FinancialRisk,LiquidityRisk,ExchangeRateRisk,CountryRisk)PortfolioTheoryI:riskpremiumisdeterminedbyf(SystematicMarketRisk)Theyarehighlycorrelated33RiskPremium

andPortfolioTheoryTherelevantriskmeasureforanindividualassetisitsco-movementwiththemarketportfolioSystematicriskrelatesthevarianceoftheinvestmenttothevarianceofthemarketBetameasuresthissystematicriskofanasset34FundamentalRisk

versusSystematicRiskFundamentalriskcomprisesbusiness risk,financialrisk,liquidityrisk,exchangeraterisk,andcountryriskSystematicriskreferstotheportionofanindividualasset’stotalvarianceattributabletothevariabilityofthetotalmarketportfolio35LOSd:SML,slope,shiftDefinethesecuritymarketlineanddiscussthefactorsthatcausemovementsalong,changesintheslopeof,andshiftsofthesecuritymarketline.

36securitymarketline(SML).TheequationoftheSMLisER=R