CHAPTER 5
Return and Risk Calculation
LEARNING OBJECTIVES
- Discuss the concepts of average and expected rates of return
- Define and measure risk for individual assets
- Show the steps in the calculation of standard deviation and variance of returns
- Determine the relationship between risk and return
- Highlight the difference between relevant and irrelevant risks
INTRODUCTION
Risk and return are most important concepts in finance. In fact, they are the foundation of the modern finance theory. What is risk? How is it measured? What is return? How is it measured? Other related questions are: how are assets valued in capital markets? How do investors make their investment decisions? We attempt to answer these questions in this chapter.
RETURN ON ...
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