RISK AND

RETURN
RELATIONSHIP
H
RETURN
“Income received on an
investment plus any change in market
price ,usually expressed as a percent
of the beginning market price of the
investment”
 3

COMPONENTS OF
RETURN
 YIELD CAPITAL RETURN
GAIN

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It is the most common The appreciation (or Total gain =

form of return for
investors is the periodic
cash flows(income) on
the investment, either
intrest from bonds or
dividends from stock
depression ) in the price Yield + Capiatl
of the asset , commonly Gain
called the Capital Gain
(loss)
 5

EXAMPLE

Ali purchased a stock for Rs. 6,000.

At the end of the year the stock is
worth Rs. 7500 . Ali was paid
dividends of Rs. 260. Calculate the
total return received by Ali.
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SOLUTION

TR =[Dividend+( Price at the end of the year – Price of stock)]

Price of stock
• ”
=RS. [260+ (7500-6000)]
6000
=0.293
=29.3%
EXAMPLE
If I knew a given investment had a 50%
chances of earning return Rs10 , a 25% of
earning a return of Rs 20 and there is 25%
chance of bearing a loss of Rs 10.
What is your expected return?
 8

SOLUTION
E(R) =[ TOTAL RETURN ] [P(X)]

RETURN (X) P(X) E(X) = X * P(X)

10 0.50 5
20 0.25 5
-10 0.25 -2.5
TOTAL 7.5
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RISK
Risk is the variability between the expected
and actual returns.
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TYPES OF RISK
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INTREST RATE RISK MARKET RISK FINANCIAL RISK LIQUIDITY RISK

• IT IS THE RISK THAT • IT REFERS TO THE • IT IS THE RISK AN INVESTMENT THAT

AN INVESTMENT’S VARIABILITY IN ASSOCIATED WITH THE CAN BE BOUGHT OR
VALUE WILL RETURNS USE DEBT FINANCING . SOLD QUICKLY
THE LARGER
CHANGE AS A RESULTING FROM WITHOUT SIGNIFICANT
PROPORTION OF ASSETS
RESULT OF CHANGE FLUCTUATIONS IN FINANCED BY DEBT, THE PRICE CONCESSION IS
IN INTREST RATES. THE OVERALL LARGER VARIABILITY IN CONCESSION IS
MARKET RETURNS , OTHER CONSIDERED LIQUID.
CONDITIONS. THINGS REMAINING
EQUAL
 11

TYPES OF RISK
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FOREIGN EXCHANGE
COUNTRY RISK
RISK
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WHEN INVESTING IN THIS IS ALSO TERMED

FOREIGN COUNTRIES POLITICAL
ONE MUST CONSIDER RISK,BECAUSE IT IS
THE FACT THAT THE RISK OF
CURRENCY INVESTING FUNDS IN
EXCHANGE RATES ANOTHER COUNTRY
CAN CHANGE THE WHEREBY A MAJOR A
PRICE OF THE ASSET MAJOR CHANGE IN
AS WELL. THE POLITICAL OR
ECONOMIC
ENVIRONMENT COULD
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SENSITIVITY
ANALYSIS.
• It is an approach for assessing risk that uses
several possible return estimate to obtain a
sense of variability among outcomes.
• One of the tools used to perform this
analysis is “RANGE”.
 13

VARIOUS TOOLS
1. Standard deviation- assess risk associated
with a particular investment.
2. Coefficient of variation- risk associated
with each unit of money invested .
 14

RELATIONSHIP B/W
RISK AND RETURN
There is positive relationship between
risk and relationship . Greater risk do no
guarentee higher returns; they can also
result in the loss of the invested amount .
 16

THANK
YOU!!!!!!!
ALIYA KOUSER

ZOYA ASLAM

HAJIRA BI SADIYA

NOOR SABA