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    Risk and Return Relationship Aliya

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    adilarab0730
    Risk and return are related concepts in finance. There are three components of return: yield, capital gains, and total return. Yield refers to periodic cash flows like interest or dividends. Capital gains are the appreciation or depreciation in the price of an asset. Total return is the combination of yield and capital gains. Risk is measured as the variability of actual returns compared to expected returns. There are several types of risk including interest rate risk, market risk, liquidity risk, and foreign exchange risk. Tools to analyze risk include standard deviation, coefficient of variation, and sensitivity analysis using a range of potential returns. Generally, higher risk investments have the potential for higher returns but can also result in losses of the invested amount.

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    Risk and Return Relationship Aliya

    Uploaded by

    adilarab0730
    15 views16 pages
    Risk and return are related concepts in finance. There are three components of return: yield, capital gains, and total return. Yield refers to periodic cash flows like interest or dividends. Capital gains are the appreciation or depreciation in the price of an asset. Total return is the combination of yield and capital gains. Risk is measured as the variability of actual returns compared to expected returns. There are several types of risk including interest rate risk, market risk, liquidity risk, and foreign exchange risk. Tools to analyze risk include standard deviation, coefficient of variation, and sensitivity analysis using a range of potential returns. Generally, higher risk investments have the potential for higher returns but can also result in losses of the invested amount.

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    Risk and return are related concepts in finance. There are three components of return: yield, capital gains, and total return. Yield refers to periodic cash flows like interest or dividends. Capital gains are the appreciation or depreciation in the price of an asset. Total return is the combination of yield and capital gains. Risk is measured as the variability of actual returns compared to expected returns. There are several types of risk including interest rate risk, market risk, liquidity risk, and foreign exchange risk. Tools to analyze risk include standard deviation, coefficient of variation, and sensitivity analysis using a range of potential returns. Generally, higher risk investments have the potential for higher returns but can also result in losses of the invested amount.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    15 views16 pages

    Risk and Return Relationship Aliya

    Uploaded by

    adilarab0730
    Risk and return are related concepts in finance. There are three components of return: yield, capital gains, and total return. Yield refers to periodic cash flows like interest or dividends. Capital gains are the appreciation or depreciation in the price of an asset. Total return is the combination of yield and capital gains. Risk is measured as the variability of actual returns compared to expected returns. There are several types of risk including interest rate risk, market risk, liquidity risk, and foreign exchange risk. Tools to analyze risk include standard deviation, coefficient of variation, and sensitivity analysis using a range of potential returns. Generally, higher risk investments have the potential for higher returns but can also result in losses of the invested amount.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    RISK AND

    RETURN
    RELATIONSHIP
    H
    RETURN
    “Income received on an
    investment plus any change in market
    price ,usually expressed as a percent
    of the beginning market price of the
    investment”
    3

    COMPONENTS OF
    RETURN
    YIELD CAPITAL RETURN
    GAIN

    Click icon to add picture Click icon to add picture Click icon to add picture

    It is the most common The appreciation (or Total gain =


    form of return for depression ) in the price Yield + Capiatl
    investors is the periodic of the asset , commonly Gain
    cash flows(income) on called the Capital Gain
    the investment, either (loss)
    intrest from bonds or
    dividends from stock
    5

    EXAMPLE

    Ali purchased a stock for Rs. 6,000.


    At the end of the year the stock is
    worth Rs. 7500 . Ali was paid
    dividends of Rs. 260. Calculate the
    total return received by Ali.
    6

    SOLUTION

    TR =[Dividend+( Price at the end of the year – Price of stock)]


    Price of stock
    • ”
    =RS. [260+ (7500-6000)]
    6000
    =0.293
    =29.3%
    EXAMPLE
    If I knew a given investment had a 50%
    chances of earning return Rs10 , a 25% of
    earning a return of Rs 20 and there is 25%
    chance of bearing a loss of Rs 10.
    What is your expected return?
    8

    SOLUTION
    E(R) =[ TOTAL RETURN ] [P(X)]

    RETURN (X) P(X) E(X) = X * P(X)

    10 0.50 5
    20 0.25 5
    -10 0.25 -2.5
    TOTAL 7.5
    9

    RISK
    Risk is the variability between the expected
    and actual returns.
    10

    TYPES OF RISK
    Click icon to add picture Click icon to add picture Click icon to add picture Click icon to add picture

    INTREST RATE RISK MARKET RISK FINANCIAL RISK LIQUIDITY RISK

    • IT IS THE RISK THAT • IT REFERS TO THE • IT IS THE RISK AN INVESTMENT THAT


    AN INVESTMENT’S VARIABILITY IN ASSOCIATED WITH THE CAN BE BOUGHT OR
    VALUE WILL RETURNS USE DEBT FINANCING . SOLD QUICKLY
    THE LARGER
    CHANGE AS A RESULTING FROM WITHOUT SIGNIFICANT
    PROPORTION OF ASSETS
    RESULT OF CHANGE FLUCTUATIONS IN FINANCED BY DEBT, THE PRICE CONCESSION IS
    IN INTREST RATES. THE OVERALL LARGER VARIABILITY IN CONCESSION IS
    MARKET RETURNS , OTHER CONSIDERED LIQUID.
    CONDITIONS. THINGS REMAINING
    EQUAL
    11

    TYPES OF RISK
    Click icon to add picture Click icon to add picture

    FOREIGN EXCHANGE
    COUNTRY RISK
    RISK
    lick icon to add picture

    WHEN INVESTING IN THIS IS ALSO TERMED


    FOREIGN COUNTRIES POLITICAL
    ONE MUST CONSIDER RISK,BECAUSE IT IS
    THE FACT THAT THE RISK OF
    CURRENCY INVESTING FUNDS IN
    EXCHANGE RATES ANOTHER COUNTRY
    CAN CHANGE THE WHEREBY A MAJOR A
    PRICE OF THE ASSET MAJOR CHANGE IN
    AS WELL. THE POLITICAL OR
    ECONOMIC
    ENVIRONMENT COULD
    12

    SENSITIVITY
    ANALYSIS.
    • It is an approach for assessing risk that uses
    several possible return estimate to obtain a
    sense of variability among outcomes.
    • One of the tools used to perform this
    analysis is “RANGE”.
    13

    VARIOUS TOOLS
    1. Standard deviation- assess risk associated
    with a particular investment.
    2. Coefficient of variation- risk associated
    with each unit of money invested .
    14

    RELATIONSHIP B/W
    RISK AND RETURN
    There is positive relationship between
    risk and relationship . Greater risk do no
    guarentee higher returns; they can also
    result in the loss of the invested amount .
    16

    THANK
    YOU!!!!!!!
    ALIYA KOUSER

    ZOYA ASLAM

    HAJIRA BI SADIYA

    NOOR SABA

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