Risk and Returns: Guico, Nikki Andrea C. BFM01
Risk and Returns: Guico, Nikki Andrea C. BFM01
Risk and Returns: Guico, Nikki Andrea C. BFM01
Dt + (Pt - Pt-1 )
R= x 100
Pt-1
= 5%
Risk
n
R = S ( Ri )( Pi )
i=1
Payoff Matrix
Solution 2
Standard Deviation
n
s= S ( Ri - R ) ( P i )
2
i=1
CV = s / R
Example
Sale.com
CV= 58.09/15
= 3.87
Basic Foods
CV= 23.24/15
= 1.55.
Risk Attitudes
Rj = Rf + bj(RM - Rf)
Rj is the required rate of return for stock j,
Rf is the risk-free rate of return,
bj is the beta of stock j (measures systematic risk
of stock j),
RM is the expected return for the market portfolio.
Security Market Line
Rj = Rf + bj(RM - Rf)
Required Return
RM Risk
Premium
Rf
Risk-free
Return
bM = 1.0
Systematic Risk (Beta)
Example