Boundless Lecture Slides
Available on the Boundless Teaching Platform
Free to share, print, make copies and changes. Get yours at www.boundless.com
Boundless Teaching
Platform
Boundless empowers educators to engage their students
with affordable, customizable textbooks and intuitive
teaching tools. The free Boundless Teaching Platform
gives educators the ability to customize textbooks in
more than 20 subjects that align to hundreds of popular
titles. Get started by using high quality Boundless books,
or make switching to our platform easier by building from
Boundless content pre-organized to match the assigned
textbook. This platform gives educators the tools they
need to assign readings and assessments, monitor
student activity, and lead their classes with pre-made
teaching resources.
Using Boundless Presentations
The Appendix
The appendix is for you to use to add depth and
breadth to your lectures. You can simply drag and
drop slides from the appendix into the main
presentation to make for a richer lecture
experience.
Get started now at:
http://boundless.com/teaching-platform
Free to edit, share, and copy
Feel free to edit, share, and make as many copies
of the Boundless presentations as you like. We
encourage you to take these presentations and
make them your own.
If you have any questions or problems please email:
educators@boundless.com
Free to share, print, make copies and changes. Get yours at www.boundless.com
About Boundless
Boundless is an innovative technology company making education more affordable and
accessible for students everywhere. The company creates the world’s best open educational
content in 20+ subjects that align to more than 1,000 popular college textbooks. Boundless
integrates learning technology into all its premium books to help students study more efficiently
at a fraction of the cost of traditional textbooks. The company also empowers educators to
engage their students more effectively through customizable books and intuitive teaching tools
as part of the Boundless Teaching Platform. More than 2 million learners access Boundless free
and premium content each month across the company’s wide distribution platforms, including its
website, iOS apps, Kindle books, and iBooks. To get started learning or teaching with
Boundless, visit boundless.com.
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return > Implications Across Portfolios
Implications Across Portfolios
• Calculating Expected Portfolio Returns
• Portfolio Risk
• Beta Coefficient for Portfolios
Free to share, print, make copies and changes. Get yours at www.boundless.com
www.boundless.com/finance?campaign_content=book_192_section_80&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=dir
ect&utm_source=boundless
Introduction to Risk and Return > Implications Across Portfolios
Calculating Expected Portfolio Returns
• To calculate the expected return of a portfolio, you need to know the expected
return and weight of each asset in a portfolio.
• The figure is found by multiplying each asset's weight with its expected return,
and then adding up all those figures at the end.
• These estimates are based on the assumption that what we have seen in the past
is what we can expect in the future, and ignores a structural view on the market.
A Fruitful Portfolio
View on Boundless.com
Free to share, print, make copies and changes. Get yours at www.boundless.com
www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/calculatingexpected-portfolio-returns-349-
Introduction to Risk and Return > Implications Across Portfolios
Portfolio Risk
• Portfolios that are efficient investments are those that effectively diversify the
underlying risk away and price their investment efficiently.
• Portfolio risk takes into account the risk and weight of each individual position and
also the co-variances across different positions.
• To calculate the risk of a portfolio, you need each asset's variance along with a
matrix of cross-asset correlations.
Variance of any portfolio
View on Boundless.com
Free to share, print, make copies and changes. Get yours at www.boundless.com
www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/portfolio-risk350-
Introduction to Risk and Return > Implications Across Portfolios
Beta Coefficient for Portfolios
• In individual stocks, a beta coefficient compares how much a particular stock
fluctuates in value on a day-to-day basis.
• A beta coefficient for a portfolio of assets measures how that portfolio value
changes compared to a benchmark, like the S&P 500. A value of 1 suggests that
it fluctuates as much as the index and in the same direction.
• A beta coefficient of less than 1 suggests a portfolio that fluctuates less than the
benchmark. A negative beta is an indication that a portfolio moves in the opposite
direction of its benchmark.
Calculating Beta
View on Boundless.com
Free to share, print, make copies and changes. Get yours at www.boundless.com
www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-risk-and-return-8/implications-across-portfolios-80/betacoefficient-for-portfolios-351-
Appendix
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
Key terms
• Co-Variance In probability theory and statistics, co-variance is a measure of how much two random variables change together.
• Normalized variable In statistics, a normalized variable is one that is calculated using a ratio of itself and some benchmark
figure. Normalized figures tend to be smaller than the original values.
• portfolio The group of investments and other assets held by an investor.
• risk The potential (conventionally negative) impact of an event, determined by combining the likelihood of the event occurring
with the impact, should it occur.
• weighted average In statistics, a weighted average is an average that takes each object and calculates the product of its weight
and its figure and sums all of these products to produce one average. It is implied that all the individual weights add to 1.
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
Variance of any portfolio
The formula shows that the overall variance in a portfolio is the sum of each individual variance along with the cross-asset correlations.
Free to share, print, make copies and changes. Get yours at www.boundless.com
Wikipedia. "Modern portfolio theory." CC BY http://en.wikipedia.org/wiki/Modern_portfolio_theory#Risk_and_expected_return View on Boundless.com
Introduction to Risk and Return
A Fruitful Portfolio
How would you calculate the expected return on this portfolio?
Free to share, print, make copies and changes. Get yours at www.boundless.com
Amazon Web Services. "Boundless." CC BY http://s3.amazonaws.com/figures.boundless.com/508a73c2e4b045275e7845ee/expected+return.png View on
Boundless.com
Introduction to Risk and Return
Calculating Beta
Two hypothetical portfolios; what do you think each Beta value is?
Free to share, print, make copies and changes. Get yours at www.boundless.com
Amazon Web Services. "Boundless." CC BY http://s3.amazonaws.com/figures.boundless.com/508c7229e4b0e81b6cfe4ea6/betacoefficientt.png View on
Boundless.com
Introduction to Risk and Return
A portfolio is composed of 30% stock, 20% bonds, and 50%
mutual funds. The stock is expected to have a 10% return, the
bonds a 5% return and the mutual funds a 7% return. What is the
expected return of the portfolio?
A) 7.3%
B) 7.5%
C) 7%
D) 8.1%
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
A portfolio is composed of 30% stock, 20% bonds, and 50%
mutual funds. The stock is expected to have a 10% return, the
bonds a 5% return and the mutual funds a 7% return. What is the
expected return of the portfolio?
A) 7.3%
B) 7.5%
C) 7%
D) 8.1%
Free to share, print, make copies and changes. Get yours at www.boundless.com
Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Introduction to Risk and Return
A portfolio is composed of 80% stock and 20% bonds. The
variance of stock is 170 and the variance of bonds is 140. The
covariance is 30. What is the portfolio's variance?
A) 114
B) 101
C) 119
D) 168
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
A portfolio is composed of 80% stock and 20% bonds. The
variance of stock is 170 and the variance of bonds is 140. The
covariance is 30. What is the portfolio's variance?
A) 114
B) 101
C) 119
D) 168
Free to share, print, make copies and changes. Get yours at www.boundless.com
Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Introduction to Risk and Return
Over a period of three days, a company stock increased by 4%,
decreased by _______%, then increased by 6%. During that
same period, the Dow Jones increased by _______%, decreased
by 1% , and then increased by 3%. What is the company's beta?
A) 2
B) -2
C) 0.5
D) -0.5
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
Over a period of three days, a company stock increased by 4%,
decreased by _______%, then increased by 6%. During that
same period, the Dow Jones increased by _______%, decreased
by 1% , and then increased by 3%. What is the company's beta?
A) 2
B) -2
C) 0.5
D) -0.5
Free to share, print, make copies and changes. Get yours at www.boundless.com
Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/
Introduction to Risk and Return
Under the capital asset pricing model (CAPM), what beta value is
considered risky?
A) A beta above 1
B) A beta equal to 0
C) A beta between 0 and 1
D) None of these
Free to share, print, make copies and changes. Get yours at www.boundless.com
Introduction to Risk and Return
Under the capital asset pricing model (CAPM), what beta value is
considered risky?
A) A beta above 1
B) A beta equal to 0
C) A beta between 0 and 1
D) None of these
Free to share, print, make copies and changes. Get yours at www.boundless.com
Saylor OER. "Business Administration « Saylor.org – Free Online Courses Built by Professors." CC BY 3.0
http://www.saylor.org/majors/Business/
Introduction to Risk and Return
Attribution
• Wikipedia. "Beta (finance)." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Beta_(finance)
• Wikipedia. "Normalized variable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Normalized%20variable
• Wikipedia. "Modern portfolio theory." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modern_portfolio_theory
• Wiktionary. "portfolio." CC BY-SA 3.0 http://en.wiktionary.org/wiki/portfolio
• Wiktionary. "risk." CC BY-SA 3.0 http://en.wiktionary.org/wiki/risk
• Wikipedia. "Co-Variance." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Co-Variance
• Wikipedia. "Modern portfolio theory." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Modern_portfolio_theory
• Wikipedia. "Expected return." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Expected_return
• Wiktionary. "weighted average." CC BY-SA 3.0 http://en.wiktionary.org/wiki/weighted+average
Free to share, print, make copies and changes. Get yours at www.boundless.com