Business Administration - Financial Planning RFC225 Chapter Notes - Chapter 15.1: Cash Flow, Credit Risk, Market Risk
22 Mar 2017
School
Professor
Document Summary
1 csc chapter 15 introduction to the portfolio approach. Return: total return (tr): security consist of the sum of two components, 1. Price change: return% = cash flow + (ending value beginning value) x100. Beginning value: ex-post (or historical) returns: past returns, ex-ante: expected (or projected) returns in the future, lowest to highest risk, 1. T-bills: risk premium: risk free return plus an additional expected return, risk: chance that actual income from an investment will differ from the expected outcome, common types of risks, 1. Inflation risk: chance of purchasing power decline: ex. Inflation adjusted returns (t-bill: 2. business risk: risk of doing business in particular industry or e(cid:374)vi(cid:396)o(cid:374)(cid:373)e(cid:374)t, (cid:373)easu(cid:396)ed (cid:271)y va(cid:396)ia(cid:271)ility i(cid:374) a (cid:272)o(cid:373)pa(cid:374)y"s ea(cid:396)(cid:374)i(cid:374)gs, 3. Political risk: political creating economic stability and viability: 4. Liquidity risk: an investment bought or sold without a significant price change is considered liquid: 5. Interest rate risk: changes in the level of interest rates. Bonds are more sensitive to interest rates: 6.
