Slide investment 2021 (đầu tư tài chính)

Investment Associate Prof Võ Thị Thúy Anh Investment Assoiate Prof Võ Thị Thúy Anh 2 Course description  Number of hours 45 (3 credits)  Level Undergraduate  Pre requisites Financial market and Institutions Investment Assoiate Prof Võ Thị Thúy Anh 3 Course description (cont )  Aims This course develops the understanding and application of the theory, tools, terminology of investments from a finance viewpoint It has the following aims  To provide students with a fundamental and advanced know.

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Associate Prof

Võ Thị Thúy Anh

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Investment- Assoiate Prof Võ Thị 2

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Investment- Assoiate Prof Võ Thị

Course description (cont.)

 Aims: This course develops the

understanding and application of the

theory, tools, terminology of investments from a finance viewpoint It has the

following aims:

 To provide students with a fundamental and

advanced knowledge of investment theory

 To guide students in the practical application of

investment analysis

 To demonstrate to students the techniques of

financial valuation

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Learning Outcome

 On completion of this course successful students will be able to:

 Knowledge and Understanding

 Acquire knowledge of the theory, tools, terminology of investment

management

 Understand the limits of such knowledge and its effects on analyses

and interpretation

 Subject-specific Skills

 Apply the principles of investment theory, security and market analysis

and efficiency in a practical setting

 Manage a financial portfolio with an understanding of risk and return

 Apply the economic analysis of decision making with risk to financial

decision

 Personal and key skills:

 Use web-based sources to obtain current and historical financial data

 Develop numeracy and computational skills, power of inquiry, logical

thinking, critical thinking and capacity for independent and managed learning

self- Acquire familiarity with the latest developments and innovations in

investment analysis

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Grading

 The weights given to each part of the

class work are as follows:

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Course outline

 Chapter 1: Introduction to

Investment

 Chapter 2: Portfolio management

 Chapter 3: Asset pricing models

 Chapter 4: Stock analysis and

valuation

 Chapter 5: Bond analysis and

valuation

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Materials and manuals

 Bodie, Z., Kane, A., Marcus, A J.,

Essentials of Investments, Fifth Edition

 Reilly, F K., Brown, K C., Investment

Analysis and Portfolio Management, 7th

Edition, Thomson - South Western,

2003 Chapter 1 – 2, 6 – 16, 19

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Materials and manuals (cont.)

 Materials:

 Videos of Petrov’s finance center, course

Investment All of videos are available on Youtube

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Chapter 1:

Introduction to Investment

 Why do individuals invest?

 What are financial assets?

 What is an investment?

 How do we measure the rate of

return on an investment?

 How do investors measure risk

related to alternative investments?

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Materials and Manuals

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Why Do Individuals

Invest?

By saving money (instead of

spending it), individuals

tradeoff present consumption for a larger future consumption

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 Essential nature of investment

 Reduced current consumption

 Planned later consumption

 Real Assets

 Assets used to produce goods and

services

 Financial Assets

 Claims on real assets

Investments & Financial Assets

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Investment Process

 Security analyse

 Portfolio management

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How Do We Measure The Rate Of Return On An Investment?

exchange rate between future consumption and present

consumption Market forces determine this rate

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the difference for

surplus on their savings give rise

to an interest rate referred to as the pure time value of money

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diminished in value because of inflation, then the investor will demand an interest rate higher than the pure time value of

money to also cover the expected inflation expense

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If the future payment from the

investment is not certain, the

investor will demand an interest rate that exceeds the pure time

value of money plus the inflation rate to provide a risk premium

to cover the investment risk

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Defining an Investment

A current commitment of $ for a

period of time in order to derive

future payments that will

compensate for:

 the expected rate of inflation

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W = 100

W1 = 150 Profit = 50

W2 = 80 Profit = -20 1-p = 4

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W1 = 150 Profit = 50

W2 = 80 Profit = -20

1-p = 4 100

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The Real Risk Free Rate

preference for consumption

of income and investment

opportunities in the economy

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Adjusting For Inflation

Real RFR =

1 Inflation)

of Rate

(1

RFR) Nominal

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Nominal Risk-Free Rate

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Facets of Fundamental Risk

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Business Risk

caused by the nature of a

firm’s business

leverage determine the level of business risk.

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Financial Risk

 Uncertainty caused by the use of debt

financing

 Borrowing requires fixed payments which

must be paid ahead of payments to

stockholders

 The use of debt increases uncertainty of

stockholder income and causes an

increase in the stock’s risk premium

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Liquidity Risk

secondary market for an investment

 How long will it take to convert an

investment into cash?

 How certain is the price that will be

received?

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Exchange Rate Risk

by acquiring securities denominated

in a currency different from that of the investor

the investors return when

converting an investment back into the “home” currency

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Country Risk

 Political risk is the uncertainty of returns

caused by the possibility of a major

change in the political or economic

environment in a countr

 Individuals who invest in countries that

have unstable political-economic

systems must include a country

risk-premium when determining their

required rate of return

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Risk Premium

f (Business Risk, Financial

Risk, Liquidity Risk,

Exchange Rate Risk, Country Risk)

or

f (Systematic Market Risk)

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Risk Premium

and Portfolio Theory

 The relevant risk measure for an

individual asset is its co-movement with the market portfolio

 Systematic risk relates the variance

of the investment to the variance of the market

 Beta measures this systematic risk

of an asset

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Fundamental Risk

versus Systematic Risk

business risk, financial risk,

liquidity risk, exchange rate risk, and country risk

of an individual asset’s total variance attributable to the variability of the

total market portfolio

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Determinants of

Required Rates of Return

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P

D

P HPR

D1 = Dividend during period one

Measures of Historical Rates

of Return: Single Period

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Holding Period Yield

HPY = HPR - 1

1.25 - 1 = 0.10 = 10%

Measures of Historical Rates of Return (cont.)

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n = number of years investment is held

AHPY = Annual HPR - 1

Measures of Historical Rates of

Return (cont.)

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Arithmetic Mean

yields period

holding

annual of

sum the

HPY

: where

HPY/

AM

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HPR

: follows as

returns period

holding

annual the

of product

the

: where

1 HPR

GM

2 1

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Where Pi is the weight of asset i and Ri is its rate

of return What is the possible values of Pi?

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Computation of Holding

Period Yield for a Portfolio

Stock Shares Price Mkt Value Price Mkt Value HPR HPY Wt HPY

$

HPY = 1.095 - 1 = 0.095

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Expected Rates of Return

investment will earn its

expected rate of return

an outcome

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Return) of

y Probabilit

(

) E(R Return

Expected

) R

(P

) )(R

(P )

)(R [(P1 1  2 2   n n

=

) )(R

P

(

1

i i

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Computation of the Expected Return for a Portfolio of Risky Assets

Expected Security Return (R i ) Weight (W i )

i asset for

return of

rate expected

the )

E(R

i asset

in portfolio

the of

percent the

W

: where

R W )

E(R

i i

1

i por

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Measuring the Risk of

an Invidual Investment

2 n

1

i

Return) Expected

Return (Possible

-y) Probabilit (

) (

i

i 1

)]

E(R )[R

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an Invidual Investment (cont.)

Standard Deviation is the

square root of the variance

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Possible Rate Expected

of Return (R i ) Return E(R i ) R i - E(R i ) [R i - E(R i )] 2 P i [R i - E(R i )] 2 P i

0.08 0.11 0.03 0.0009 0.25 0.000225 0.10 0.11 0.01 0.0001 0.25 0.000025 0.12 0.11 0.01 0.0001 0.25 0.000025 0.14 0.11 0.03 0.0009 0.25 0.000225

0.000500 Variance ( 2 ) = 0050

Standard Deviation ( ) = 02236

s

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Coefficient of variation (CV) a measure

of relative variability that indicates risk per unit of return

E(R)

i s

=

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Measuring the Risk of an Invidual

Investment using historical rate of return

variance of the series holding period yield during period i expected value of the HPY that is equal to the arithmetic mean of the series

the number of observations

1

HPY)]

( E HPY

n

1 i

i 2

s

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Measuring the Risk of a Portfolio

 The risk of a portfolio is

 the average of the risk of invidual

investments (assets) in the porfolio?

 sum of the risk of invidual investments

(assets) in the porfolio?

 If we add a risky asset in the

portfolio, the risk of this portfolio will increase?

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Covariance of Returns

 A measure of the degree to which two

variables “move together” relative totheir individual mean values overtime

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Covariance of Returns

For two assets, i and j, the covariance of

rates of return is defined as:

Covij = E{[Ri - E(Ri)][Rj - E(Rj)]}

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Covariance and Correlation

 The correlation coefficient is obtained

by standardizing (dividing) the

covariance by the product of the

individual standard deviations

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Covariance and Correlation

jt

it i

ij

R of deviation

standard the

R of deviation

standard the

returns of

t coefficien

n correlatio the

r

: where

Cov r

ij ij

s

s s

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Correlation Coefficient

 rij=+1 : perfect positive correlation This

means that returns for the two assets move together in a completely linear manner

 rij=-1 : perfect negative correlation This

means that the returns for two assets have the same percentage movement, but in

opposite directions

 rij=0 : the movements of the rates of

return of the two assets are not correlated

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s

s s

ij ij

ij

2 i

i port

n

1 i

n

1 i

ij j

n

1 i

i

2 i

2 i port

r Cov

where

j, and i

assets for

return of

rates e

between th covariance

the Cov

i asset for

return of

rates of

variance the

portfolio

in the value

of proportion

by the determined

are weights

where portfolio,

in the assets

individual the

of weights the

W

portfolio the

of deviation standard

the

: where

Cov w

w w

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Variance (Standard Deviation) of Returns for a Portfolio

Closing Closing Date Price Dividend Return (%) Price Dividend Return (%)

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 The expected rate of return

 The expected standard deviations of returns

 The correlation, measured by covariance,

affects the portfolio standard deviation

 Low correlation reduces portfolio risk while

not affecting the expected return

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Combining Stocks with Different

Returns and Risk

Case Correlation Coefficient Covariance

W )

E(R

1 .10 50 0049 .07

2 .20 50 0100 .10

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Combining Stocks with

Different Returns and Risk

 Assets may differ in expected rates of

return and individual standard deviations

 Negative correlation reduces portfolio risk

 Combining two assets with -1.0 correlation

reduces the portfolio standard deviation to zero only when individual standard

deviations are equal

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Constant Correlation with

1 .10 rij = 0.00

2 .20

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Constant Correlation

with Changing Weights (cont.)

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 Investor’s view of risk

A measures the degree of risk aversion

Risk Aversion & Utility

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Risk Aversion and Value:

Using the Sample Investment

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Risk Aversion

The assumption that most

investors will choose the least

risky alternative, all else being equal and that they will not

accept additional risk unless

they are compensated in the

form of higher return

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Variance or Standard Deviation

• 2 dominates 1; has a higher return

• 2 dominates 3; has a lower risk

• 4 dominates 3; has a higher return

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Utility and Indifference Curves

 Represent an investor’s willingness to

trade-off return and risk

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Utility and Indifference Curves

High Risk Aversion

Low Risk Aversion

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Indifference Curves

Expected Return

Standard Deviation

Increasing Utility

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Associate Prof

Võ Thị Thúy Anh

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Chapter 2: Portfolio management

How to allocate capital between risky

and risk free assets?

What is optimal risky portfolio? And how

to construct it?

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It’s possible to split investment funds

between safe and risky assets

Risk free asset: proxy; T-bills

Risky asset: stock (or a portfolio)

Allocating Capital Between

Risky Risk Free Assets

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Issues

Examine risk/return tradeoff.

Demonstrate how different

degrees of risk aversion will

affect allocations between risky and risk free assets.

Allocating Capital Between

Risky & Risk Free Assets (cont.)

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E(rc) = yE(rp) + (1 - y)rf

=rf+y[E(rp)-rf]

rc = complete or combined portfolio

Expected Returns for Combinations

Tiêu đề	Investment
Tác giả	Võ Thị Thúy Anh
Trường học	University Name Not Provided
Chuyên ngành	Finance
Thể loại	Course Description
Năm xuất bản	2021
Thành phố	City Name Not Provided

Định dạng
Số trang	297
Dung lượng	1,04 MB