Fundamentals of Financial Management (Concise 6th Edition)

240 Part 3 Financial Assets 8-3 RISK IN A PORTFOLIO CONTEXT: THE CAPM In this section, we discuss the risk of stocks when they a ...

Chapter 8 Risk and Rates of Return 241 8-3a Expected Portfolio Returns, rˆp The expected return on a portfolio, rˆp, is the weig ...

242 Part 3 Financial Assets 8-3b Portfolio Risk Although the expected return on a portfolio is simply the weighted average of th ...

Chapter 8 Risk and Rates of Return 243 Stocks W and M can be combined to form a riskless portfolio because their re- turns move ...

244 Part 3 Financial Assets Market risk is the risk that remains even if the portfolio holds every stock in the market. Market r ...

Chapter 8 Risk and Rates of Return 245 reasons. First, high administrative costs and commissions would more than offset the bene ...

246 Part 3 Financial Assets Stock A is de" ned as an average-risk stock because it has a beta of b $ 1.0 and thus moves up and d ...

Chapter 8 Risk and Rates of Return 247 A B C D E F 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 1 ...

248 Part 3 Financial Assets We can summarize our discussion up to this point as follows: A stock’s risk has two components, div ...

Chapter 8 Risk and Rates of Return 249 A portfolio consisting of low-beta stocks will also have a low beta because the beta of ...

250 Part 3 Financial Assets The increasing availability of international securities is mak- ing it possible to achieve a better ...

Chapter 8 Risk and Rates of Return 251 8-4 THE RELATIONSHIP BETWEEN RISK AND RATES OF RETURN The preceding section demonstrated ...

252 Part 3 Financial Assets returns, analysts often look to historical data to estimate the market risk premium. Historical data ...

Chapter 8 Risk and Rates of Return 253 As the discussion in Chapter 6 implied, the required return for any stock can be found as ...

254 Part 3 Financial Assets saw that the risk-free rate as measured by the rate on U.S. Treasury securities is called the nomina ...

Chapter 8 Risk and Rates of Return 255 If the expected in! ation rate rose by 2%, to 3% " 2% $ 5%, rRF would rise to 8%. Such a ...

256 Part 3 Financial Assets Figure 8-10 illustrates an increase in risk aversion. The market risk premium rises from 5% to 7.5%, ...

Chapter 8 Risk and Rates of Return 257 As we will see in Chapter 9, this change would have a negative effect on Allied’s stock p ...

258 Part 3 Financial Assets important step forward in " nance theory; they also have some de" ciencies when applied in practice. ...

Chapter 8 Risk and Rates of Return 259 investors higher expected returns. Put another way—if you are seeking higher returns, you ...