The-Investment-Setting(投资分析与投资组合管理)

LecturePresentationSoftware

toaccompany

InvestmentAnalysisand

PortfolioManagement

SeventhEdition

by

FrankK.Reilly&KeithC.BrownChapter1

TheInvestmentSettingQuestionstobeanswered:Whydoindividualsinvest?Whatisaninvestment?Howdowemeasuretherateofreturnonaninvestment?Howdoinvestorsmeasureriskrelatedtoalternativeinvestments?Chapter1

TheInvestmentSettingWhatfactorscontributetotheratesofreturnthatinvestorsrequireonalternativeinvestments?Whatmacroeconomicandmicroeconomicfactorscontributetochangesintherequiredrateofreturnforindividualinvestmentsandinvestmentsingeneral?WhyDoIndividualsInvest? Bysavingmoney(insteadofspendingit),individualstradeoffpresentconsumptionforalargerfutureconsumption.HowDoWeMeasureTheRateOfReturnOnAnInvestment?Thepurerateofinterestistheexchangeratebetweenfutureconsumptionandpresentconsumption.Marketforcesdeterminethisrate. People’swillingnesstopaythedifferenceforborrowingtodayandtheirdesiretoreceiveasurplusontheirsavingsgiverisetoaninterestratereferredtoasthepuretimevalueofmoney.HowDoWeMeasureTheRateOfReturnOnAnInvestment? Ifthefuturepaymentwillbediminishedinvaluebecauseofinflation,thentheinvestorwilldemandaninterestratehigherthanthepuretimevalueofmoneytoalsocovertheexpectedinflationexpense.HowDoWeMeasureTheRateOfReturnOnAnInvestment? Ifthefuturepaymentfromtheinvestmentisnotcertain,theinvestorwilldemandaninterestratethatexceedsthepuretimevalueofmoneyplustheinflationratetoprovideariskpremiumtocovertheinvestmentrisk.HowDoWeMeasureTheRateOfReturnOnAnInvestment?DefininganInvestment Acurrentcommitmentof$foraperiodoftimeinordertoderivefuturepaymentsthatwillcompensatefor:thetimethefundsarecommittedtheexpectedrateofinflationuncertaintyoffutureflowoffunds.Measuresof

HistoricalRatesofReturnHoldingPeriodReturn1.1Measuresof

HistoricalRatesofReturnHoldingPeriodYieldHPY=HPR-11.10-1=0.10=10%1.2AnnualHoldingPeriodReturnAnnualHPR=HPR1/nwheren=numberofyearsinvestmentisheldAnnualHoldingPeriodYieldAnnualHPY=AnnualHPR-1Measuresof

HistoricalRatesofReturnMeasuresof

HistoricalRatesofReturnArithmeticMean1.4Measuresof

HistoricalRatesofReturnGeometricMean1.5APortfolioofInvestments ThemeanhistoricalrateofreturnforaportfolioofinvestmentsismeasuredastheweightedaverageoftheHPYsfortheindividualinvestmentsintheportfolio.ComputationofHolding

PeriodYieldforaPortfolioExhibit1.1ExpectedRatesofReturnRiskisuncertaintythataninvestmentwillearnitsexpectedrateofreturnProbabilityisthelikelihoodofanoutcomeExpectedRatesofReturn1.6RiskAversion Theassumptionthatmostinvestorswillchoosetheleastriskyalternative,allelsebeingequalandthattheywillnotacceptadditionalriskunlesstheyarecompensatedintheformofhigherreturnProbabilityDistributionsRisk-freeInvestmentExhibit1.2ProbabilityDistributionsRiskyInvestmentwith3PossibleReturnsExhibit1.3ProbabilityDistributionsRiskyinvestmentwithtenpossibleratesofreturnExhibit1.4MeasuringtheRiskof

ExpectedRatesofReturn1.7MeasuringtheRiskof

ExpectedRatesofReturnStandardDeviationisthesquarerootofthevariance1.8MeasuringtheRiskof

ExpectedRatesofReturn Coefficientofvariation(CV)ameasureofrelativevariabilitythatindicatesriskperunitofreturn StandardDeviationofReturnsExpectedRateofReturns1.9MeasuringtheRiskof

HistoricalRatesofReturnvarianceoftheseriesholdingperiodyieldduringperiodIexpectedvalueoftheHPYthatisequaltothearithmeticmeanoftheseriesthenumberofobservations1.10Determinantsof

RequiredRatesofReturnTimevalueofmoneyExpectedrateofinflationRiskinvolvedTheRealRiskFreeRate(RRFR)Assumesnoinflation.Assumesnouncertaintyaboutfuturecashflows.InfluencedbytimepreferenceforconsumptionofincomeandinvestmentopportunitiesintheeconomyAdjustingForInflationRealRFR=1.12NominalRisk-FreeRate DependentuponConditionsintheCapitalMarketsExpectedRateofInflationAdjustingForInflationNominalRFR=(1+RealRFR)x(1+ExpectedRateofInflation)-11.11FacetsofFundamentalRiskBusinessriskFinancialriskLiquidityriskExchangerateriskCountryriskBusinessRiskUncertaintyofincomeflowscausedbythenatureofafirm’sbusinessSalesvolatilityandoperatingleveragedeterminethelevelofbusinessrisk.FinancialRiskUncertaintycausedbytheuseofdebtfinancing.Borrowingrequiresfixedpaymentswhichmustbepaidaheadofpaymentstostockholders.Theuseofdebtincreasesuncertaintyofstockholderincomeandcausesanincreaseinthestock’sriskpremium.LiquidityRiskUncertaintyisintroducedbythesecondarymarketforaninvestment.Howlongwillittaketoconvertaninvestmentintocash?Howcertainisthepricethatwillbereceived?ExchangeRateRiskUncertaintyofreturnisintroducedbyacquiringsecuritiesdenominatedinacurrencydifferentfromthatoftheinvestor.Changesinexchangeratesaffecttheinvestorsreturnwhenconvertinganinvestmentbackintothe“home〞currency.CountryRiskPoliticalriskistheuncertaintyofreturnscausedbythepossibilityofamajorchangeinthepoliticaloreconomicenvironmentinacountry.Individualswhoinvestincountriesthathaveunstablepolitical-economicsystemsmustincludeacountryrisk-premiumwhendeterminingtheirrequiredrateofreturnRiskPremiumf(BusinessRisk,FinancialRisk,LiquidityRisk,ExchangeRateRisk,CountryRisk)orf(SystematicMarketRisk)RiskPremium

andPortfolioTheoryTherelevantriskmeasureforanindividualassetisitsco-movementwiththemarketportfolioSystematicriskrelatesthevarianceoftheinvestmenttothevarianceofthemarketBetameasuresthissystematicriskofanassetFundamentalRisk

versusSystematicRiskFundamentalriskcomprisesbusiness risk,financialrisk,liquidityrisk,exchangeraterisk,andcountryriskSystematicriskreferstotheportionofanindividualasset’stotalvarianceattributabletothevariabilityofthetotalmarketportfolioRelationshipBetween

RiskandReturnExhibit1.7(Expected)ChangesintheRequiredRateofReturnDuetoMovementsAlongtheSMLExhibit1.8ChangesintheSlopeoftheSMLRPi=E(Ri)-NRFR where:RPi=riskpremiumforassetiE(Ri)=theexpectedreturnforassetiNRFR=thenominalreturnonarisk-freeasset1.1