BSNS108 Lecture Notes - Expected Return, Standard Deviation, Weighted Arithmetic Mean
19 Sep 2013
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Topic 10- risk, return, portfolios, diversification and the capm. A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial professionals. Think of an investment portfolio as a pie that is divided into pieces of varying sizes representing a variety of asset classes and/or types of investments to accomplish an appropriate risk-return portfolio allocation. The risk and return of the portfolio are determined by the risk and return of the individual assets in the portfolio. The forward-looking risk and return of the portfolio are measured by expected return and standard deviation of returns as they are for individual assets. Expected return: e(ra)= probability 1 x return 1 + probability 2 x return 2. 2 this equation gives us the variance, so. Var(r) = p1 r1 e(r) to find the standard deviation we simply have to square root the variance.
