文档介绍：财务分析与证券定价(英文)chapter20
Chapter 20
The Analysis of Equity Risk
and the Cost of Capital
Links
What you will learn from this chapter
The precise measures of the cost of capital are difficult to calculate
What risk is
How business investment can yield extreme (high and low) returns
How diversification reduces risk
Problems with using standard Capital Asset Pricing Model and other beta technologies
The difference between fundamental risk and price risk
The determinants of fundamental risk
The determinants of price risk
What you will learn from this chapter (cont1>.)
How fundamental analysis protects against price risk
How pro forma analysis can be adapted to prepare value-at-risk profiles
How fundamentals help to measure predicted betas
The Nature of Risk
Value is determined by expected payoffs discounted for risk
Risk is determined by the likelihood of getting payoffs that are different from the expected payoff
Risk is characterized by the set of possible es that an investor faces and the probabilities of these es: a return distribution
Models of the Distribution of Returns:
The Normal Distribution
Best and Worst Performers, 1996: Wall Street Journal Shareholder Scorecard
The Actual Distribution of Annual Stock Returns
-100%
100%
-47%
13%
73%
2 sd
-2 sd
0 sd
Annual Return
Probability
Diversification and Risk: the Effect on Standard Deviation from Adding More Securities to a Portfolio
The Normal Distribution for the S&P 500 Portfolio
Mean annual return = 13%
Standard deviation of returns = 20%
The Actual Distribution of S&P 500 Portfolio Annual Returns, 1926-98
Number of Times Observed
Source: Based on data from the Center for Research in Security Prices, University of Chicago
The Problems with “Asset Pricing Models”
Risk factors are hard to identify
Risk premiums on risk factors are hard to measure
Often assume normal distributions of return
The CAPM is “Seductively Precise”
Normally distributed stock returns a