公司理财第五版高等院校双语教材·金融系列-chapter 11(PPT 27页).ppt

Chapter 11
Risk, return, and capital budgeting
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Objectives
Measure and interpret the market risk, or beta, of a security
Relate the market risk of a security to the rate of return that investors demand
Calculate the opportunity cost of capital for a period
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Content
Measuring market risk
Risk and return
Capital budgeting and project risk
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Market portfolio: portfolio of all assets in the economy. In practice a broad stock market index is used to represent the market
Beta or β: sensitivity of a stock’s return to the return on market portfolio
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Measuring beta
Aggressive stocks have high betas, betas greater than , meaning that their returns tend to respond more than one for one to changes in the return of the overall market. The betas of defensive stocks are less than . The returns of these stocks vary less than one for one with market returns. The average beta of all stocks is exactly.
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We can measure beta by the slope of a line fitted to the points in the figure
β=
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We can break mon stock returns into two parts: the part explained by market returns and the firm’s beta, and the part due to news that is specific to the firm. Fluctuations in the first part reflect market risk; fluctuations in the second part reflect unique risk
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The procedure for panies’ betas
Observe rates of return, usually monthly, for the stock and the market
Plot the observations
Fit a line showing the average return to the stock at different market returns
Bata is the slope of the fitted line.
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Portfolio betas
Beta of portfolio = (fraction of portfolio in first stock × beta of first stock) + (fraction of portfolio in second stock × beta of second stock)
A portfolio invested 50-50 in Amazon and ExxonMobil would have a beta of
(.5 × ) + (.5 × .41) =
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