Accounting & Financial.pptx

Stand Alone Risk: Measurements • Standard Deviation: a measure of the tightness of the probability distribution. The tighter the probability distribution, the smaller the Standard Deviation and the less risky the asset. • Coefficient of Variation: Standard Deviation divided by return. It measures risk per unit of return, thus provides more standardized basis for risk profile comparison between assets with different return.

Standard Deviation • Variance The larger the Standard Deviation:

• the lower the probability that actual returns will be close to the expected return

• Standard Deviation

• hence the larger the risk

Standard Deviation

Historical Data to Measure Standard Deviation • Standard Deviation

Historical Data to Measure Standard Deviation

N = Jumlah Data

Coefficient of Variation (CV) • Standardized measure of dispersion • about the expected value:

Shows risk per unit of return.

Risk Aversion • Risk-averse inverstors dislike risk and require higher rates of return as an inducement to buy riskier securities. Expected Rate Of Return : Expected ending value – cost / cost • Risk Premium : The Difference between the expected rate of return on a given risky asset and that on a less risky asset.

Risk in a Portfolio Context : THE CAPM • Capital Asset Pricing Model (CAPM) : A model based on the proposition that any stock’s required rate of return is equal to the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification.