Abraham G. (Assistant Professor) : Advanced Financial Management MAF - 581
Abraham G. (Assistant Professor) : Advanced Financial Management MAF - 581
Required readings:
Ehrhardt, M.C. Brigham, E. F. (2011), Financial Management: Theory
and Practice, 13th Ed., South-Western Cengage Learning. (Chapter 6, 24)
Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan (2013),
Fundamentals of Corporate Finance, 10 th ed. McGraw-Hill. (Chapter 13)
Return on Investments
3
NB:
The 1933 small-company stock total return was
142.9 percent.
The standard deviation for small-stock portfolio is
investment.
Cont’d………
14
long-term price appreciation
Income-Oriented Portfolio: primary objective is
= 11.3%
Portfolio Risk
19
n
r i , t r i , Avg 2 n
r j , t r j , Avg 2
t 1 tt
Cont’d……….
22
2 A B A B P( R A RB )
2
p
2
A
2
A
2
B
2
B
Where: wA = portfolio weight of asset A
wB = portfolio weight of asset B
P = correlation coefficient
wA + wB = 1
Cont’d……….
31
Example
The returns and risk of Johnson & Johnson (JNJ),
σp = 5.495%
Market Risk
34
APT model
ri = rRF + (r1 – rRF)bi1 + . . . + (rj – rRF)bij
ri = required rate of return on Stock i:
bi = sensitive only to economic Factor:
Example
Assume that all stocks’ returns depends on inflation,
Questions?
Thank You!