Investment presentation of chapter stock and bonds.pptx

presentation of investment from finance

1. Assignment for Investment Submitted By Abdul Samad Submitted To: Sir M.Arshad

2. Chapter 07 An Introduction to Portfolio Management

3. Portfolio Management Portfolio management is the process of collecti ng investments to achieve specific financial goals. stocks bonds real estate other securities

4. Risk Risk means the uncertainty of future outcomes. Probability of an adverse outcome. Market Risk Equity Risk Interest Rate Risk Liquidity Risk Inflation Risk Political and Regulatory Risk

5. Risk and Risk Aversion Risk Aversion Means that, Individuals wh0 are not risk taker, two assets with equal rates of return, they will select the asset with the lower level of risk are called Risk Averse.

6. Markowitz Portfolio Theory Investors prefer higher returns to lower returns. Similarly, for a given level of expected return. Investors prefer less risk to more risk Risk of the portfolio is estimated on the basis of the variability of expected returns.

7. Alternative Measures Of Risk Alternative Measures Of Risk is the variance, or standard deviation of expected returns. The idea is that the more dispersed the expected returns the greater the uncertainty of future returns..

8. Expected Rate of Return It is the expected rate of return for a portfolio of investments is simply the weighted average of the expected rates of return for the individual investments in the portfolio. The weights are the proportion of total value for the individual investment.

9. Covariance of Returns It is the measure of the degree to which two variables move together relative to their individual mean values over time. Individual concerned with the covariance of rates of return rather than prices. Positive covariance means that investments move in the same direction in same period. A negative covariance, rates of return tend to move in different directions.

10. Covariance and Correlation Covariance is affected by the variability of the two individual return indexes. Correlation Coefficient It can vary only in the range −1 to +1. A value of +1 indicates a perfect positive linear relationship between assets. While -1 correlation indicates a perfect – ve relationship between assets

11. Standard Deviation of a Portfolio σport = the standard deviation of the portfolio wi = the weights of an individual asset in the portfolio, where weights are determined by the proportion of value in the portfolio σ2 i = the variance of rates of return for asset i Covij = the covariance between the rates of return for assets  i  and j where Covij = rijσiσj

12. Three-Asset Portfolio σport = the standard deviation of the portfolio wi = the weights of an individual asset in the portfolio, where weights are determined by the proportion of value in the portfolio σ2 i = the variance of rates of return for asset i Covij = the covariance between the rates of return for assets  i  and j where Covij = rijσiσj

13. Three-Asset Portfolio The correlations are rS,B = 0.25; rS,C = −0.08; rB,C = 0.15

14. Thankyou