Risk. &. Returns. ....................

Risk & returns

1. Risk & Return Part of every Investment

2. Return: Meaning Return means a primary motivating farce that drives the investment. Return is a reward for undertaking an investment Depend on Time period of Investment, type of securities Varies for all investment options

3. Return There are 2 Types of return namely, Current Return and capital return Current return means periodic return such as interest, dividend etc. Capital return means gain in present value of investment Total Return = Capital Return+ Current Return

4. Return Return Relative – Return relative means 1+total return in decimals Cumulative Wealth Index – A return measure that reflects the changes in the level of wealth. Arithmetic mean means average return Geometric mean means the average compound rate of growth that actually occur over multiple period Expected return means a return that occurs with investment in multiple securities with different portion of investment and amount at same period of time Real Return means a return in relation to inflation

5. Risk: Meaning Risk is the possibility that the actual outcome of an investment will differ from the expected one.

6. Source of Risk Business Risk – A risk that associated with activity of firm for eg . Due to arrival of Smart phone market for NIKON is totally washed out. Interest Rate Risk - Change in interest rate affects investment. If interest rate goes up, the market price of existing fixed income securities fall and vise a versa. for eg . Ups and down in interest rate on securities offered by government Market Risk – It is a risk associated with the economy wide factors such as GDP, Government spending, economic growth etc. for eg . Stock market crash, Down in Quarterly level of GDP

7. Types of Risk There are 2 Types of Risk Unique Risk (Unsystematic Risk)– it is known as Diversified risk, for eg . Investor can change company or industry, development of new product, a labor strike, emergence of new competitor etc . Market Risk ( S ystematic Risk)– It is known as Undiversified risk for eg . Worse or down wards Economic condition , Growth rate of GDP, level of Gov. spending, money supply, interest rate, inflation etc.

8. Types of Risk Systematic Risk Unsystematic Risk

9. Measuring Risk For Unique Risk (Unsystematic Risk)- Standard deviation or Variance For Market Risk (Systematic Risk)- Beta Calculation

10. Market Risk vs. Unique Risk Unique Risk Market Risk 1 5 10 15 20 25 No. of Securities Risk

11. Risk-Return