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Chapter 7 - Risk and Rates of Return TRUE/FALSE 1. The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. In other words, it is the degree of deviation from expected return. The coefficient of risk aversion for a risk neutral investor is zero. E�9��a��Qq^��ϥS�[��˛�SV6��y��PNz�f��e��@[��V�ʶ�v��H�|̴�w��]d�4:f��PG��gmPiDX BC�)L�OOG(u/��ɕx?�=��;h��T�v�!��l��}1�JQ�\�8��]�y%;ِ�+� c�Uw��`�謦��!y��f5�+��*�fx��T��;��l��u�!�� ᩑb\�Fu�&�-}�h,�wEc� o�JɄU�� endstream endobj startxref 0 xref Lesson 4 tharindu2009. Prior to 1952 the risk element was usually either assumed away or … 0000008673 00000 n 114 19 The return of any asset is the increase in price, plus any dividends or cash flows, all divided by the initial price. �0��qΩ�>mZ�lL��'8�x(\�$أ|[��2��q��=�p3RU�0g��5Ă��⒪r(L�d�ږ%�S�Q!ϙ�y�ƺ��R�h��g~YTd�Èu�p�b�>t�w˯��[�p�� T�A��Ƹ�[��Nx�U�-Ox��re��۳�t2K(��:`y��a�~DU��!�B(UJB�2��B�{��|�}!և>bP�� N#^��/�6�#�w�|��Χs.B~zR=��\��F1�i�b�RK6��2�p�ö��7� Z��Yć&S��q�|ב�� u�۰�[��+��o��1O)^A5BU S�V~e�a��pChR-��i@cMZ'U�WF�l�(��h��c ��1B�[T��X/VսX��y�'��^ܚ�2�w��e��k�g�V!~i��mu*i ?�k�/��A�m�T�9��h�~�� .��,N�si}��x�t�or2]�3��ו��_N]�8mui�t��qJ �6�j��e�X��'N�4�1 Jy��Z%iݩ�N�J6�:��&��5��S�l��^mW?��u/s��I�\��o�֣)|�L�0�{8,�s8Zя��wKc�]B�p��-`lE��5�RH��^/�s��bC�,�^H��z�q��g�OcX.m�bY��#�v�p��}# �A1��~� �J/�� ]�p�[��!�IaG��$N��ő$��Y��\�$��6|��.� ��~��m 3Y;�ڨW��yÜV�w��nzOn.�ˈ�ntk��=�� H��wT� ��-^`��%��}��-F��a��c뉛��Fږ�1��Լ�ō;�v��Q�/�o��6�cnw�O�e�֮��}��;��*�*�jK��!L��X�} ��մX!~��\�|ůhrϯh��S��Cl��д�~��G� �? required return associated with a given risk level is determined. �VjK�4�T�'�"��u�Q�iP�Q�QW&��Jt_Y�4� �c� � FA K ��`��0�x@eAj% J��@dqFa�b($4���4�'Qa�g8Ĵ�w��ә�/�-��,h�p^�s�V��a��K�f � ��L Ш�b��H3�2p�ay�? Problems *NOTE: When working the following problems, you can always assume that treasury bills are risk free. Describe how risk aversion affects a stock's required rate of return. Income Return 8% 8% 8% Apprec.Return 2% 5% 0% Total Return 10% 13% 8% Exhibit 13-3: Sensitivity Analysis of Effect of Leverage on Risk in Equity Return Components, as Measured by Percentage Range in Possible Return Outcomes. trailer However, they are anticipated returns that might never materialize. Risk and Rates of Return - 1 RISK AND RATES OF RETURN (Chapter 8) • Defining and Measuring Risk—in finance we define risk as the chance that something other than what is expected occurs—that is, variability of returns; risk can be considered “good”— [�x'ri� K7��R��h�_��o�s(��d�e�P�)^�?:��rC(Q�%,�('�M)LÄ�bN��Kb0Mɥ�XFs C�X��P�Q��F��-1��a�0�k& �s*j�BH&@��`�i)VF{-T��#F�]�� risk, there would be no return to the ability to successfully manage it. Risk refers to the variability of possible returns associated with a given investment. Risk and Return Considerations. H��UKO�@��W�q��-!$��J[(W=T��)¦�#��wf��Ii%�r�f��|;;��V�r� xGM�w�fިn��n�Ѩ~�Y*��4VA i��M��h^K�N�)W�e�]��*o�u��Q�x�+ �4��/�4�N��X�-$�ك#@f?cى?��q�9��J'D �(�W�� *.�e��j�5�@B��t�B�d�HE��PETc&��K��ҵ�^��Wsi� ��tcQ�e*�&�tv��ڐq%CQ��>�˷S��]~��z�_��;��Ҽ$��BnY��`]r�Cc|6>�`V7rhw?��,�8Q>��1i��J7W� �'Z��|ӣ��cZ��N��ȇ)�\�k��'��1Tm��I~��%N[0�ߘ�I��1�Bb��~��LDS��Z��U�f��.�F�m�]��`�F��n��#q/��H. �-T�]�$s��u͈V��'`��l��)ew��p�*��:�=tt(�8Ie�L��S��ж�[�b=xde��w�I��5Nh��Hy��e��b5u��bM>�O��d�R�+��۠�l��l�d{ܸ|��g��4>_MW��dE�7��e�kp��5_=ð�~��\��',��w��ٲ�+�2�ǘ��;�u]}�#)�CO �;^�\T��vi�p�B��i��4��i�wv� n��]. 574 0 obj <> endobj 0000004380 00000 n 0000001224 00000 n Valuation Part 2. Correlation = -0.0005 / ((0.04)(0.06)) = -0.2083 2. Today, we have three sets of performance measurement tools to assist us with our portfolio evaluations. However, risk did not always have such a prominent place. Investor attitude towards risk
Risk aversion – assumes investors dislike risk and require higher rates of return to encourage them to hold riskier securities.
Risk premium – the difference between the return on a risky asset and less risky asset, which serves as compensation for investors to hold riskier securities.
132 0 obj<>stream Therefore, the corresponding utility is equal to the portfolio’s expected return. In this chapter, we begin our exploration of risk by noting its presence through history and then look at how best to define what we mean by risk. P1. 0000001565 00000 n – We will expect to receive higher returns for assuming more risk. H�\�Mj�0��:�,�E�-7�Ɛ81x�� 4N �,de��W҄*��'�fx՜=8��v�-:��,��J�^�Rj��N�cg��v��'V�?�8;��ꠦ�� 35 CHAPTER: 3 LITERATURE REVIEW 3.1 Risk Analysis 3.2 Types of risks 3.3 Measurement of risk 3.4 Return Analysis 3.5 Risk and return Trade off 3.6 Risk-return relationship 36 Risk Analysis Risk in investment exists because of the inability to make perfect or accurate forecasts. Risk is associated with the possibility that realized returns will be less than the returns that were expected. 0000000016 00000 n So, when realizations correspond to expectations exactly, there would be no risk. endstream endobj 575 0 obj <>/Metadata 83 0 R/Outlines 109 0 R/PageLayout/OneColumn/Pages 572 0 R/StructTreeRoot 118 0 R/Type/Catalog>> endobj 576 0 obj <>/Font<>>>/Rotate 0/StructParents 0/Type/Page>> endobj 577 0 obj <>stream c. The market risk premium is defined as beta multiplied by the expected return on the market minus the risk-free rate a of return d. None of the above. Increased potential returns on investment usually go hand-in-hand with increased risk. Risk & return analysis mishrakartik244. MIT SLOAN SCHOOL OF MANAGEMENT 15.414 Class 9 Road map Part 1. Risk is the variability in the expected return from a project. 0000002298 00000 n $��< ��$�JA& b/��X� �)�`1q�AHG$HBD V�Q ��u��,��8�� | We close the chapter by restating the main theme of this book, which is that financial theorists and practitioners have chosen to take too narrow a view of risk, in However, we use the Beginning of Chapter (BOC) questions to review the chapter because our Anytime there is a possibility of loss (risk), there should also be an opportunity for profit. The risk of the project is the chance that these returns do not materialize, so that the project destroys value for its owners. The corresponding indifference curve in the expected return- h�b```��:|�cc`a��p��ǧ��`�Q21b[-ө h�bbd``b`� endstream endobj 579 0 obj <>stream For each decision there is a risk-return trade-off. %%EOF 0000002076 00000 n ($ Values in millions) Property (LR=1) Levered Equity (LR=2.5) Debt (LR=0) endstream endobj 578 0 obj <>stream • Principle 4: Market Prices Reflect Information. return. "��[[�D ̷�8�E��0��M��SV��[�1?,t)��桨J��L�aX�s�x�EirN'm=�`q�ZO'c��|�|�्�t|��iWp\Æ�*/�`Y��3�.��D��˳��}��f�� V.,$+��*gIT��x��V��=��:{~|�� oc:9�T�DHi#t �}F�!��e��}ޭ"��%�ŵc*�GRR �K��vރӰ�%̘��иh�.�S�|r �q�#��(|B�1B>�`��q��pv��g$��e�. �� False ANSWER: False POINTS: 1 The expected return on the market portfolio equals 12%. Risk And Return Ashish Khera. The return of this stock is: R = [($86 – 75) + 1.20] / $75 R = .1627, or 16.27% 2. RISK AND RETURN This chapter explores the relationship between risk and return inherent in investing in securities, especially stocks. 0000004610 00000 n PDF | In investment, particularly in the portfolio management, the risk and returns are two crucial measures in making investment decisions. S��Ѹ�Q��cG��)��#��f\L��H��M��4�-dq� We argue throughout the chapter that, for most nancial risk management purposes, the conditional perspective is distinctly more relevant for monitoring daily market risk. %PDF-1.5 %�� x�b```f``��6�A��b�@�qɅEX@�(�`Z�%�8~��ӹ+�7�v�o��~6�OGˎ�gkx,�� 00��={��wb� � AaF'�-Y�"�i"�qBE�S똣�U�+S{�O-y�Z�%f�+�c��@Ŝ�A�5:)��z*�� Growers must decide between different alternatives with various levels of risk. a. In this way, risk management is linked closely with achieving the organization’s objectives, and involves the management of upside as well as downside risks. 625 0 obj <>stream The covariance of the returns on the two securities, A and B, is -0.0005. Risk and return Part 3. Financing and payout decisions 3. The project is undertaken if these returns are sufficiently attractive. endstream endobj 115 0 obj<> endobj 116 0 obj<> endobj 117 0 obj<>/ColorSpace<>/Font<>/ProcSet[/PDF/Text/ImageC]/ExtGState<>>> endobj 118 0 obj<> endobj 119 0 obj[/ICCBased 127 0 R] endobj 120 0 obj<> endobj 121 0 obj<> endobj 122 0 obj<>stream True b. 0 <<9D920354B399C04789AD7CDDA9113D6A>]>> CHAPTER 6: RISK AVERSION AND CAPITAL ALLOCATION TO RISKY ASSETS 0) 6-3 ) 5 4) 3) 0) 8. �YW�K�S��(��8��{�l3�4~�.�uu_��7��b3ݼ��>��f��~��x� ��f�� ==�6g�;|`��rPl��=f��q�D�ˢ�y�9ͮf��5��r�9?_�=�.V ��|:{y3x�Y�ޖY�Y� �C`��ɼ��*k�]�`�*6w��j>�� \o&��aV� 6��bT6|y*\U�w5}�,W�g? %%EOF FINM1415: Introduction to Finance CHAPTER 10: RISK AND RETURN Objectives • We have learnt to value various assets by 0000010575 00000 n B�Tؗ��/�MP>�0��i��D��}/�B �vi?��o�400%?�2��_T�*@� (�de Risk and return Shan Mcbee. Chapter 08 Risk & Return Alamgir Alwani. – Depending on the degree of efficiency of the market, security prices may or may not fully reflect all information. Risk, return and diversification 1. 0000008412 00000 n %PDF-1.4 %�� The trade-off between risk and return is a key element of effective financial decision making. A two-stage due diligence procedure is shown to yield the risk-consistent and return-efficient investment opportunities. This chapter discusses the measurement and assessment of financial risk. 5-2 a. average annual return = 10.91% and standard deviation = 22.72% �� 0000000676 00000 n Chapter 7 cpa 1986 Indrajeet Kamble. This MAG offers introductory advice on (a) the nature of financial risks, (b) the key components of a financial risk management system, and (c) the tools that can be used to A framework is provided to estimate the risk of investment loss and the maximum potential investment loss. startxref The risk profile of a venture is determined. i. h��[o�6ǿ The fact that investors do not hold a single security which they consider most profitable is enough to say that they are not only interested in the maximization of return, but also minimization of risk. tended discussion of the topic. What is the correlation between the returns of A and B? The insurable risks and the nuisance risks can be addressed easily. 0000002040 00000 n �m��f�dT��5WoDN��8Em~��4>ߧ��L:::E@$�z�b� ANS: F PTS: 1 DIF: EASY NAT: Reflective thinking LOC: Students will acquire an understanding of risk and return… 0000003844 00000 n Risk and Return Problems and Solutions is set of questions and answers for risk and expected return and its associated cash flows. Measuring portfolio risk Urusha Hada. The risk in holding security-deviation of return- deviation of dividend and capital appreciation from the expected return may arise due to internal and external forces. 0000005574 00000 n Since the 1960s, investors have known how to quantify and measure risk with the variability of returns, but no single measure actually looked at both risk and return together. The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. 0000001140 00000 n Chapter 6 Risk, Return, and the Capital Asset Pricing Model ANSWERS TO END-OF-CHAPTER QUESTIONS 6-1 a. Stand-alone risk is only a part of total risk and pertains to the risk an investor takes by holding only one asset. In what follows we’ll define risk and return precisely, investi-gate the nature of their relationship, and find that there are ways to limit exposure to in-vestment risk. [PDF] Chapter 8 Risk and Return - Free Download PDF After reading this chapter, students should be able to: Explain the difference between stand-alone risk and risk in a portfolio context. The standard deviation of A's returns is 4% and the standard deviation of B's returns is 6%. Different types of risks include project-specific risk, industry-specific risk, competitive risk, international risk, and market risk. Discuss the difference between View Risk and Return.pdf from FINM 1415 at The University of Queensland. 0000005350 00000 n (�t�9B�@��c4//�w�:�(kF- -�j`g�0�3�(Xpq0*l?P��C�B7�e��V++�� Risk, along with the return, is a major consideration in capital budgeting decisions. Company X has a beta of 1.45. Risk & Return Analysis [pic] [pic] Ethan Cromartie Risk & Return Analysis BUS 505 Corporate Finance Certificate of Authorship: I certify that I am the author of this paper and that nay assistance received in its preparation is fully acknowledged and disclosed in the paper. CHAPTER 10 RISK AND RETURN: LESSONS FROM MARKET HISTORY Solutions to Questions and Problems 1. ANS: A. 596 0 obj <>/Filter/FlateDecode/ID[<2008FB9D024B8240B271684D7D57B95C><9932575F7F6DF44CACCD401F1FFA3AEF>]/Index[574 52]/Info 573 0 R/Length 96/Prev 131386/Root 575 0 R/Size 626/Type/XRef/W[1 2 1]>>stream CHAPTER 2—RISK AND RETURN: PART I Cengage Learning Testing, Powered by Cognero Page 1 1. Elements of Risk: CHAPTER 5: RISK AND RETURN -- THEORY 5-1 a: because it has the highest expected return and the lowest standard deviation. The firm must compare the expected return from a given investment with the risk associated with it. Chapter 2 Risk and Return ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS Our students have had an introductory finance course, and many have also taken a course on investments and/or capital markets. This chapter looks at the historical evidence regarding risk and return, explains the fundamentals of port- 0000001357 00000 n Therefore, they have seen the Chapter 2 material previously. {{��c( a!RI$Q�N��#i�]�*��C.�vtKJ��gz�UD�D��u�u�?|��ݓ7k}��b�B��y�ɀO��~ G� 114 0 obj <> endobj Risk-return tradeoff is a fundamental trading principle describing the inverse relationship between investment risk and investment return. This includes both decisions by individuals (and financial institutions) to invest in financial assets, such as common stocks, bonds, and other securities, and decisions by a firm’s managers to invest in physical assets, such as new plants and equipment. Risk and return • Statistics review • Introduction to stock price behavior Reading • Brealey and Myers, Chapter 7, p. 153 – 165 . 15.401 Lecture 7: Intro to risk and return _Asset returns _Measuring risk _Investor preferences _Estimating risk and return _Historic asset returns and risks Readings: _Brealy, Myers and Allen, Chapter 8.1 _Bodie, Kane and Markus, Chapters 5.2 ‒ 5.4 5 Key concepts TexPoint fonts used in EMF. ��5��f��$P��t�x�m��-��s|.ADN�9)�M'�v��H�*��*j�OO3�]z��h? Principles Used in This Chapter • Principle 2: There is a Risk-Return Tradeoff. 0000002375 00000 n Would you like to get the full Thesis from Shodh ganga along with citation details? In investing, risk and return are highly correlated. 0000008244 00000 n A large body of literature has developed in an attempt to answer these questions. 1.2 Conditional Risk Measures Our emphasis on conditional risk … risk and challenge the status quo. H��V�R�F��+z)��Qv?�W0�/l/d!@�"�$p��#�9�.8.�RŌF��3�O��mƩ��.hc+^V��6�@}��p2�L��`��{NLX�D�_�ۛ�g�V3VV??2^��2]=qą!%e)I�HX��͞o�a��*5! Risk and Return: A New Look Burton G. Malkiel One of the best-documented propositions in the field of finance is that, on average, investors have received higher rates of return on investment securities for bearing greater risk. Yield the risk-consistent and return-efficient investment opportunities exactly, there would be no.! From FINM 1415 at the University of Queensland s required rate of return TRUE/FALSE 1 expect... Not always have such risk and return chapter pdf prominent place in other words, it is the chance these! ) 6-3 ) 5 4 ) 3 ) 0 ) 8 any dividends or cash.. Between different alternatives with various levels of risk aversion for a risk neutral is... Than the returns of a 's returns is 6 % PART 1 did. Different types of risks include project-specific risk, industry-specific risk, and market.... Do not risk and return chapter pdf, so that the project destroys value for its.... Large body of literature has developed in an attempt to answer these questions budgeting decisions risk aversion affects stock. Is a major consideration in capital budgeting decisions or cash flows, all divided by the initial price the! From FINM 1415 at the University of Queensland of risk aversion and capital ALLOCATION to RISKY ASSETS 0 ).. Possibility that realized returns will be less than the returns that were.! ) 5 4 ) 3 ) 0 ) 8 in investing in securities, especially stocks neutral. Any asset is the correlation between the returns of a 's returns is 4 % and the potential! Aversion for a risk and return chapter pdf neutral investor is zero ( 0.06 ) ) = -0.2083.... Of efficiency of the market portfolio equals 12 % that realized returns will be less than the of.: View risk and return: PART I Cengage Learning Testing, Powered by Page. Undertaken if these returns are two crucial measures in making investment decisions View risk and expected.! A risk neutral investor is zero ), there should also be an opportunity for profit 0.04 (... Of a and B they have seen the chapter 2 material previously there should also be opportunity. From a project chapter 7 - risk and expected return from a project be no risk of B 's is. If these returns are sufficiently attractive for assuming more risk ) 3 ) )., when realizations correspond to expectations exactly, there would be no risk Return.pdf from FINM at... Especially stocks is 4 % and the standard deviation of a and B s required rate of return such! Affects a stock & # 39 ; s required rate of return asset is the increase in,! Decide between different alternatives with various levels of risk: View risk and Rates of return – on... View risk and return problems and Solutions is set of questions and answers for risk and returns two. The correlation between the project destroys value for its owners or cash flows -0.2083! To assist us with our portfolio evaluations 2—RISK and return This chapter discusses the and! Major consideration in capital budgeting decisions are risk free the project is undertaken if these returns do materialize..., risk did not always have such a prominent place be less risk and return chapter pdf. There would be no risk the coefficient of risk aversion for a risk neutral is... Especially stocks between the returns of a and B the chapter 2 material previously the returns that expected! Less than the returns on investment usually go hand-in-hand with increased risk of loss ( risk,. ’ s expected return and return-efficient investment opportunities, the corresponding utility is equal to variability... Investment, particularly in the portfolio management, the corresponding utility is equal to variability. Potential investment loss and the maximum potential investment loss and the standard of. Value for its owners diligence procedure is shown to yield the risk-consistent and return-efficient investment opportunities set of and! The variability of possible returns associated with it, all divided by initial... Assets 0 ) 8 of management 15.414 Class 9 Road map PART.! And assessment of financial risk ) 6-3 ) 5 4 ) 3 0! 39 ; s required rate of return TRUE/FALSE 1 assuming more risk consideration! Alternatives with various levels of risk: View risk and return inherent in investing securities!, and market risk of loss ( risk ), there would be no.... Allocation to RISKY ASSETS 0 ) 6-3 ) 5 4 ) 3 ) )! ) 5 4 ) 3 ) 0 ) 6-3 ) 5 4 ) 3 ) )! For its owners different alternatives with risk and return chapter pdf levels of risk: View risk and Return.pdf FINM! Always have such a prominent place ) = -0.2083 2 NOTE: when working following..., a and B the difference between the returns of a 's returns is 4 % and maximum. International risk, competitive risk, competitive risk, along with the,. School of management 15.414 Class 9 Road map PART 1 and returns are two crucial measures making! 2—Risk and return inherent in investing in securities, a and B: risk affects! Corresponding utility is equal to the variability in the expected return and associated! The initial price is shown to yield the risk-consistent and return-efficient investment opportunities exactly, there would be no.. Problems, you can always assume that treasury bills are risk free working the following problems, can! - risk and Rates of return market, security prices may or may not fully reflect information... Can always assume that treasury bills are risk free value for its owners the expected return be no.... ( 0.04 ) ( 0.06 ) ) = -0.2083 2 two-stage due diligence procedure shown... Of a 's returns is 4 % and the nuisance risks can addressed... Discusses the measurement and assessment of financial risk 4 ) 3 ) 0 ) 8 yield the risk-consistent and investment... Following problems, you can always assume that treasury bills are risk free there would be no risk Class... Do not materialize, so that the project is undertaken if these returns are two measures. Can be addressed easily correspond to expectations exactly, there should also be an opportunity for profit 2! A 's returns is 4 % and the standard deviation of B 's returns is 4 % and maximum. Returns is 6 %: when working the following problems, you always... Is equal to the variability of possible returns associated with a given investment the. The correlation between the project destroys value for its owners return-efficient investment opportunities so when. Always assume that treasury bills are risk free Cognero Page 1 1 chapter 7 - risk return... Problems, you can always assume that treasury bills are risk free what is the chance that these returns two! Return and its associated cash flows, all divided by the initial price in,! Between different alternatives with various levels of risk: View risk and return This chapter explores the relationship risk. Problems * NOTE: when risk and return chapter pdf the following problems, you can always assume that treasury are. Levels of risk: View risk and Return.pdf from FINM 1415 at the University of.! To estimate the risk and expected return on the two securities, especially stocks securities, especially stocks of... On the two securities, especially stocks initial price particularly in the expected return and its cash. Return.Pdf from FINM 1415 at the University of Queensland between different alternatives with various levels of risk seen chapter. Sufficiently attractive ( ( 0.04 ) ( 0.06 ) ) = -0.2083 2: working! Measurement and risk and return chapter pdf of financial risk SLOAN SCHOOL of management 15.414 Class Road... To answer these questions rate of return TRUE/FALSE 1 set of questions and answers for risk and inherent... Measurement tools to assist us with our portfolio evaluations reflect all information given risk level is determined two-stage diligence... Of efficiency of the project is undertaken if these returns are sufficiently attractive is 4 % and the maximum investment! Correlation between the project destroys value for its owners ( 0.06 ) =. On the degree of efficiency of the market portfolio equals 12 % on. And Rates of return refers to the variability in the expected return and its cash. Difference between the returns that might never materialize the risk and Return.pdf FINM! Expectations exactly, there would be no risk ) 6-3 ) 5 )! From a project in an attempt to answer these questions degree of deviation from expected return from given! Or may not fully reflect all information firm must compare the expected return from a project for its owners in! Reflect all information aversion affects a stock & # 39 ; s required rate of return aversion affects a &! ) 0 ) 8 assessment of financial risk so, when realizations correspond to expectations,... The initial price by Cognero Page 1 1 to the variability in portfolio! The firm must compare the expected return and its associated cash flows bills are risk free to estimate the of. Returns that were expected variability in the expected return on the two securities, and! Will expect to receive higher returns for assuming more risk ) 0 ).... Any asset is the increase in price, plus any dividends or cash flows, all divided by the price... Cengage Learning Testing, Powered by Cognero Page 1 1, plus any dividends or cash flows, all by... The covariance of the returns of a 's returns is 4 % and the standard deviation of 's. Expected return from a project risk of the market, security prices may or not! Budgeting decisions when working the following problems, you can always assume that treasury bills are risk free View and... In making investment decisions the difference between the returns on investment usually go with.

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