MODULE 04

RISK & RETURNS

MEANING OF RISK

Risk can be defined as the Probability that the expected return from the security
will not materialize. Every investment involves uncertainties that make future
investment return risk-prone. Uncertainties could arise due to the political,
economical and industry factors.
CAUSES OF RISK

 Wrong decision of what to invest in.

 Wrong timing of investment may cause higher risk and less returns.
 Maturity period or the length of investment: the larger the period, the more risky is
the investment normally.
 Amount of investment: the higher the amount invested in any security the larger is
the risk, while a judicious mix of investment in small quantities may be less risky.
 Method of investment, namely secured by collateral or not.
 Natural calamities such as acts of god etc..
TYPES OF RISK

TYPES OF RISK

SYSTEMATIC RISK UNSYSTEMATIC RISK

> Uncontrollable by Co. > Controllable by an Co.
> Macro in nature. > Micro in nature.
ADVANTAGES OF RISK

 Higher Potential Returns: Generally, investments with higher risk have the potential
to generate higher returns. Risk and return are often positively correlated.
 Innovation and Growth: Risk-taking is essential for innovation and economic growth.
Entrepreneurs and businesses that take calculated risks by investing in new ideas,
products, or technologies.
 Learning and Adaptation: Embracing risk can lead to valuable learning experiences
and personal growth. By stepping outside of comfort zones and confronting challenges.
 Competitive Advantage: Businesses that effectively manage and mitigate risks can
gain a competitive edge in the marketplace.
 Opportunity Identification: Risk-taking enables individuals and organizations to
identify and capitalize on opportunities that others may overlook.
DE-MERITS OF RISK
 Losses and Financial Hardship: Investments with higher risk levels carry a greater
chance of losing money, which can lead to financial hardship for individuals,
businesses, and investors.
 Uncertainty and Anxiety: Risk introduces uncertainty and unpredictability into
decision-making processes. This uncertainty can create anxiety and stress for
individuals and organizations.
 Reputation Damage: Failed risk-taking endeavors can damage the reputation and
credibility of individuals, businesses, and institutions.
 Overconfidence and Hubris: Excessive risk-taking can foster overconfidence and
hubris, leading individuals or organizations to underestimate potential risks and
overestimate their abilities to manage them.
 Debt and Leverage Risks: Borrowing money or using leverage to finance investments
can amplify both potential gains and losses.
MEANING OF RETURNS

Returns in investment refer to the financial gains or losses generated by an

investment over a specific period of time. It represents the performance of an
investment and is typically expressed as a percentage of the initial investment
amount.
TYPES OF RETURNS

 Total Return: The overall gain or loss on an investment over a specified period,
considering all sources of income and changes in the investment's value.
 Annualized Return: The average annual return on an investment over a specific
period, calculated to provide a standardized measure of performance.
 Percentage Return: The return expressed as a percentage of the initial investment
amount.
 Real Return: The return adjusted for inflation, reflecting the purchasing power of
the investment's gains or losses.
COMPONENTS OF RETURNS

i. Capital Appreciation: This refers to the increase in the value of the

investment over time. For example, the price appreciation of stocks or
real estate.
ii. Yield/Income: the interest or dividend received is called yield.
DIFFERENCE BETWEEN RISK & RETURN
BASIS RISK RETURN
Meaning Risk can be defined as the The return on investment in
probability that the assets takes the form of
expected return from the dividend or interest income
security will not and appreciation in the
materialize. price of the asset.
Forces The main forces Returns are the gains or
contributing to risk are losses from a security in a
price and interest. particular period.
Types ~Systematic risk Return can be realized
~Unsystematic risk. return and expected return.

Measurement Measured through It can be measured through

behavioral methods and traditional and modern
quantitative/statistical methods.
methods.
Objective To minimize the risk. To maximize the returns.
• Systematic Risk

 Meaning :
Systematic risk refers to the risk inherent to the entire market or market
segment. Systematic risk, also known as undiversifiable risk, volatility risk, or
market risk, affects the overall market, not just a particular stock or industry.
 Advantages of Systematic Risk :

• It provides an opportunity for investors to diversify their portfolios across different

asset classes and industries.
• It prompts systematic risk encourages long-term investment strategies and
discourages short-term speculation.
• It prompts investors to consider macroeconomic factors and market trends in their
decision-making process.
• Enhanced understanding of systemic risks in finance.
• Informed decision-making for regulatory measures.
 Disadvantages of Systematic Risk :

• Difficulty in identifying all possible sources of future threats.

• Lack of easy ways to reduce its impact on the system's performance.
• Wider impact affecting everyone.
• Difficulty in analyzing impact on distinct stocks, sectors, and businesses.
• Variability in the scale of impact across different businesses and sectors.

Types of Systematic Risk in Finance :

1) Interest Rate Risk
2) Market Risk
3) Purchasing Power/ Inflationary Risk
 UNSYSTEMATIC RISK
Unsystematic risk is the risk that is unique to a specific company
or industry. It's also known as nonsystematic risk, specific risk,
diversifiable risk, or residual risk.

Types of Unsystematic Risks

1}Business risk

2}Financial risk and

3}Operational risk
IMPORTANCE OF UNSYSTEMATIC RISK
Understanding unsystematic risk is essential for successful
investing, as it allows investors to make informed decisions about
asset allocation, risk management, and investment strategies.
Investors should recognize the importance of managing
unsystematic risk through diversification, due diligence, and active
portfolio management.
ADVANTAGES OF UNSYSTEMATIC RISK
1}This risk relates to only a particular company or industry and not the
overall economy.

2}The factors that lead to risk are internal. Therefore internal monitoring
and measures can help avoid or minimize the risk.

3}The severity of the unsystematic risk is usually lower than the

systematic risk. The duration of the impact is also lower than the
systematic risk.

4}As it is limited to company or industry the number of people affected

is smaller.
DISADVANTAGES OF UNSYSTEMATIC RISK
1}Such a risk can have an impact on the specific industry and cause
disruption, even when the economy is doing well.

2}Although the risk is specific to a company or industry, it can take

some time for things to return to normal. And, if any other issue
arises in between, the duration could be even longer.

3}At some point, unsystematic risk can lead to a permanent change

in the preference of the customers.

4}Unsystematic risks are usually not repetitive.This makes it

difficult for management to plan as they will face a new problem the
next time, and previous preparations are useless.
Difference Between Systematic Risk and Unsystematic Risk
SYSTEMATIC RISK
• Variability in a security's total
returns that is directly associated
with overall movements in the
general market or economy is
called systematic risk.
• Systematic risks are external
risks which are uncontrollable
and broadly affect the
investments.
• Systematic risk covers interest
risk, market risk etc.
UNSYSTEMATIC RISK
• The variability in a security's total
returns not related to overall
market variability is called the
non-systematic (non-market) risk.
Non-systematic risk is specific to
an industry or the company
individually.
Unsystematic risks are internal risks
which are arises due to internal
environment of a firm or those
affecting a particular industry.
• Unsystematic risk contains
business and financial risk etc.
• Systematic factors are influenced by
factors such as securities market as
well as the economic, sociological,
political, and legal considerations of
prices of all securities in economy.
• The systematic portion results from
overall market influences.
• Examples of such industries are
foodstuffs, toys, and telephones.
• Unsystematic factors are caused by like
labour strike, irregular disorganized
management policies, and consumer
preferences.
• The unsystematic portion results from
company and industry influences.
• The electricity and power industries may
be pointed out as suitable example of
portraying unsystematic risk.
 Systematic Risk

 Systematic risk, also called aggregate risk or market risk, refers to the unavoidable risks
that could affect a financial market and cause the values and prices of investments to
change. Because economic conditions rely on a variety of factors like politics,
regulations, purchasing power and employment, economists are typically aware of the
constant threats to all securities. Systematic risk is a term economists use to describe
this intrinsic vulnerability of financial markets.
 Systematic risk is dependent on market structure and the dynamics that may result in
shocks or uncertainty in an entire market. These shocks can originate from a variety of
sources like the international economy, government policy mandates or acts of nature.
To qualify as systematic, it's essential that these events impact the entire market.
 Types Of Systematic Risk

Systematic Risk

Market Risk Interest Rate Risk Purchasing Power Risk

Absolute Risk Price Risk Demand Inflation Risk

Relative Risk Reinvestment Risk Cost Inflation Risk
Directional Risk
Non-Directional Risk
Basis Risk
Volatility Risk
 Market Risk :- Market risk is a measure of all the factors affecting the performance of
financial markets.
o Absolute Risk :- These situations cannot be predicted and are beyond anyone's control.
Absolute risk is also referred to as Pure risk.
o Relative Risk :- A measure of the risk of a certain event happening in one group
compared to the risk of the same event happening in another group.
o Directional Risk :- Those risks where the loss arises from an exposure to the particular
assets of a market.
o Non-Directional Risk :- Non-Directional risk arises where the method of trading is not
consistently followed by the trader.
o Basis Risk :- It is due to the possibility of loss arising from imperfectly matched risks.
o Volatility Risk :- It is the risk of an adverse change of price, due to changes in the
volatility of a factor affecting that price.
 Interest Risk :- Interest rate risk is the probability of a decline in the value of an asset
resulting from unexpected fluctuations in interest rates.
o Price Risk :- It is the risk of a decline in the value of a security or an investment
portfolio excluding a downturn in the market, due to multiple factors.
o Reinvestment Risk :- It is the probability that an investor will not be able to reinvest
cash flows, at a rate equal to their current return.
 Purchasing Power Risk :- Purchasing power risk is the possibility that you will not be
able to buy as much with your savings in the future.
o Demand Inflation Risk :- Demand inflation is a general and sustained increase in prices
due to demand that is too high in relation to supply. The lack of products and services
then automatically leads to inflation.
o Cost Inflation Risk :- It occurs when overall prices increase due to increases in the cost
of wages and raw materials. Higher costs of production can decrease the aggregate
supply, or the amount of total production, in an economy.
 Types of Unsystematic Risk

Unsystematic Risk

Business Risk/ Financial Operational

Liquidity Risk/Credit Risk Risk
1}Business Risk
Business risk is also known as liquidity risk. It is so, since it emanates
(originates) from the sale and purchase of securities affected by business
cycles, technological changes, etc.

The Types of Business Risk

Business Risk/Liquidity
Risk

Assets Liquidity Risk Funding Liquidity Risk

• Asset Liquidity Risk: Asset liquidity risk is due to losses arising
from an inability to sell or pledge assets at, or near, their carrying
value when needed. For e.g. assets sold at a lesser value than their
book value.
• Funding Liquidity Risk: Funding liquidity risk exists for not having
an access to the sufficient-funds to make a payment on time. For e.g.
when commitments made to customers are not fulfilled.

2}Financial or Credit Risk

Financial risk is also known as credit risk. It arises due to change in the
capital structure of the organization. The capital structure mainly
comprises of three ways by which funds are sourced for the projects.
 The Types of Financial Risk

Financial Risk/Credit Risk

Non-
Exchange Recovery Credit Sovereign Settlement
Directional
Rate Risk Rate Risk Event Risk Risk Risk
Risk
A}Exchange Rate Risk: Exchange rate risk is also called as exposure
rate risk. It is a form of financial risk that arises from a potential change
seen in the exchange rate of one country's currency in relation to
another country's currency and vice-versa.
For e.g. investors or businesses face it either when they have assets or
operations across national borders, if they have loans or borrowings in
a foreign currency. In other words, all investors who invest
internationally in today's increasingly global investment arena face the
prospect of uncertainty in the returns after the convert the foreign gains
back to their own currency.

B}Recovery Rate Risk: Recovery rate risk is an often neglected aspect

of a credit-risk analysis. The recovery rate is normally needed to be
evaluated.
For e.g. the expected recovery rate of the funds tendered (given) as a
loan to the customers by banks, non- banking financial companies
(NBFC), etc.
C}Credit risk: Credit risk is the probability of a financial loss resulting
from a borrower's failure to repay a loan. Essentially, credit risk refers to
the risk that a lender may not receive the owed principal and interest,
which results in an interruption of cash flows and increased costs for
collection.
D}Non-Directional Risk: Non-Directional risk arises where the method
of trading is not consistently followed by the trader.
For e.g. the dealer will buy and sell the share simultaneously to mitigate
the risk.
E}Sovereign Risk: Sovereign risk is associated with the government.
Here, a government is unable to meet its loan obligations, reneging (to
break a promise) on loans it guarantees, etc.
F}Settlement Risk: Settlement risk exists when counterparty does not
deliver a security or its value in cash as per the agreement of
trade or business.
 OPERATIONAL RISK
Operational risk is the risk of loss as a result of ineffective or failed internal processes, people,
systems, or external events that can disrupt the flow of business operations. These operational
losses can be directly or indirectly financial.
TYPES OF OPERATIONAL RISK

▶ Model risk – the risk of loss resulting from using insufficiently

accurate models to make decisions, frequently in the context of valuing
financial securities, and becoming prevalent in activities such as assigning
consumer credit scores, real-time probability prediction of fraudulent
credit
▶ People risk – the risk of financial losses and negative social performance
related to inadequacies in human capital and the management of
human resources.
▶ Legal risk – The risk that a counterparty to a transaction will not be liable
to meet its obligations under law
▶ Political risk - The risk an investment’s returns could suffer as a result of
political changes or instability in a country.
OTHER TYPE OF RISK

▶ Regulation risk – the risk that a change to the laws or regulations will hurt a
business or investment by affecting that business, sector, or market.
▶ Bull Bear Market risk – A bull market occurs when securities are on the rise,
while a bear market occurs when securities fall for a sustained period of
time
▶ Management risk - The risk—financial, ethical, or otherwise—
associated with ineffective, destructive, or underperforming management.
▶ Default risk - Also called default probability, is the probability that a
borrower fails to make full and timely payments of principal and interest,
according to the terms of the debt security involved.
▶ Industry risk – the factors that can impact (both positively and negatively)
a particular industry, which can in turn affect companies within the sector.
▶ Liquidity risk – The risk of loss resulting from the inability to meet payment obligations in
full and on time when they become due.
▶ Country risk – The uncertainty associated with investing in a particular country, and more
specifically the degree to which that uncertainty could lead to losses for investors.
▶ Foreign exchange risk – The chance that a company will lose money on
international trade because of currency fluctuations.
▶ Interest rate risk - The probability of a decline in the value of an asset resulting from
unexpected fluctuations in interest rates
PORTFOLIO RISK AND RETURN
CONCEPTS
MEANING OF PORTFOLIO RISK

Portfolio risk refers to the potential for loss or variability in the

returns of an investment portfolio. It encompasses the uncertainty
associated with the performance of investments held within the
portfolio and is influenced by various factors, including the types of
assets held, their correlation with each other, and the overall asset
allocation.
MEANING OF PORTFOLIO RETURNS

 Portfolio returns refer to the profit or loss generated by a collection of

investments over a certain period of time. When you invest in various assets
such as stocks, bonds, real estate, or commodities, the combined performance
of these investments determines your portfolio return. It's typically expressed
as a percentage and can be calculated using various methods, including simple
returns, time-weighted returns, or money-weighted returns. Portfolio returns
are crucial for investors to assess the effectiveness of their investment strategy
and to measure their progress towards their financial goals.
ADVANTAGES


Portfolio returns offer several advantages for investors:
 Performance Evaluation: Portfolio returns provide a quantitative measure of how well an
investment portfolio is performing over a specific period. By comparing returns to
benchmarks or targets, investors can assess whether their investment strategy is meeting
their objectives.
 Decision Making: Understanding portfolio returns helps investors make informed
decisions about asset allocation, diversification, and risk management. By analyzing
historical returns, investors can identify which assets contribute most to performance and
adjust their portfolio accordingly.
 Goal Tracking: Portfolio returns enable investors to track their progress toward financial
goals. Whether it's saving for retirement, education, or other objectives, monitoring returns
helps investors stay on track and make any necessary adjustments to achieve their goals.
 Risk Management: Assessing portfolio returns allows investors to evaluate the risk-adjusted
performance of their investments. By considering both returns and risk metrics such as volatility,
investors can better understand the trade-offs between risk and return in their portfolios.
 Performance Attribution: Portfolio returns help investors understand the drivers of
performance. By analyzing the contributions of individual assets or asset classes to overall
returns, investors can identify sources of outperformance or underperformance and adjust their
investment strategy accordingly.
 Communication: Portfolio returns provide a common language for discussing investment
performance among investors, financial advisors, and other stakeholders. Whether reporting to
clients, stakeholders, or regulatory authorities, portfolio returns serve as a standardized measure
of investment performance.
 Overall, portfolio returns play a critical role in investment decision-making, goal tracking, risk
management, and performance evaluation, helping investors make informed choices and achieve
their financial objectives.
DISADVANTAGES


While portfolio returns offer valuable insights for investors, they also come with some disadvantages:
 Incomplete Picture: Portfolio returns provide a summary of overall performance but may not capture the
full complexity of an investment portfolio. They may overlook factors such as transaction costs, taxes, and
other expenses, which can significantly impact net returns.
 Short-Term Focus: Portfolio returns are typically calculated over specific time periods, such as daily,
monthly, or annually. This short-term focus may lead investors to make decisions based on temporary
fluctuations in performance rather than long-term investment fundamentals.
 Benchmarking Challenges: Comparing portfolio returns to benchmarks or peer groups can be
challenging due to differences in investment objectives, asset allocation, and risk profiles. A portfolio may
outperform its benchmark in one period but underperform in another, making it difficult to assess
consistent performance.
 Volatility: Portfolio returns can be volatile, especially for portfolios with a high allocation to risky assets
such as stocks or commodities. While volatility is a natural part of investing, it can be unsettling for
investors who are not prepared for fluctuations in their portfolio's value.
 Risk-Return Trade-off: Portfolio returns do not provide a complete picture of risk. Two
portfolios with the same returns may have different levels of risk, depending on factors such as
volatility, correlation, and downside protection. Ignoring risk can lead investors to overlook the
true risk-return trade-off in their portfolios.
 Behavioral Biases: Investors may exhibit behavioral biases when interpreting portfolio returns,
such as overreacting to short-term performance or chasing past winners. These biases can lead
to suboptimal investment decisions and undermine long-term performance.
 Lack of Context: Portfolio returns alone may lack context without considering factors such as
investment objectives, time horizon, and investor preferences. A high return may be desirable,
but it's essential to consider whether it aligns with the investor's goals and risk tolerance.
 Overall, while portfolio returns provide valuable information for investors, it's essential to
consider their limitations and use them in conjunction with other measures to make informed
investment decisions.
 IMPORTANCE/SCOPE/BENIFITS


Portfolio returns are crucial for several reasons:
 Performance Evaluation: Portfolio returns serve as a primary measure of how well an investment
portfolio is performing. Investors can compare returns to benchmarks, targets, or peer groups to assess
whether their investment strategy is meeting expectations.
 Goal Tracking: By monitoring portfolio returns, investors can track their progress toward financial
goals such as retirement, education funding, or wealth accumulation. Returns help investors gauge
whether they are on track to achieve their objectives over time.
 Decision Making: Understanding portfolio returns informs investment decisions such as asset
allocation, diversification, and risk management. Investors can adjust their portfolios based on
performance data to optimize returns while managing risk according to their investment objectives and
risk tolerance.
 Risk Assessment: Portfolio returns provide insights into the risk-adjusted performance of investments.
Investors can evaluate whether the returns adequately compensate for the level of risk taken, helping to
ensure a balanced risk-return profile in the portfolio.
 Performance Attribution: Analyzing portfolio returns allows investors to identify the drivers of
performance. By assessing the contributions of individual assets or asset classes to overall returns,
investors can make informed decisions about portfolio rebalancing or adjusting their investment
strategy.
 Communication: Portfolio returns serve as a standardized metric for communicating investment
performance to stakeholders such as clients, partners, or regulatory authorities. Clear reporting of
returns facilitates transparency and accountability in investment management.
 Continuous Improvement: Regularly monitoring portfolio returns enables investors to learn from
past performance and refine their investment approach over time. By identifying areas of strength and
weakness, investors can adapt their strategies to enhance future returns and achieve better outcomes.
 Overall, portfolio returns play a vital role in guiding investment decisions, tracking progress toward
financial goals, assessing risk, and communicating performance to stakeholders. By understanding
and leveraging portfolio returns effectively, investors can optimize their investment portfolios and
work toward achieving long-term financial success.
TYPES

 There are several types of risk that contribute to portfolio risk:

 Market Risk: Also known as systematic risk, market risk arises from factors that affect
the overall performance of financial markets, such as economic conditions, interest rates,
inflation, and geopolitical events. Market risk impacts all investments to some extent and
cannot be diversified away.
 Specific Risk: Also known as unsystematic risk or idiosyncratic risk, specific risk arises
from factors specific to individual assets or companies, such as management changes,
competitive pressures, or product recalls. Specific risk can be reduced through
diversification across different securities or asset classes.
 Liquidity Risk: Liquidity risk refers to the risk that an investment cannot be quickly
bought or sold in the market without significantly affecting its price. Illiquid investments
may be subject to wider bid-ask spreads and greater price volatility, which can increase
the risk of loss.
 Credit Risk: Credit risk arises from the possibility that issuers of fixed-income
securities may default on their obligations to pay interest or repay principal. Credit risk
varies depending on the creditworthiness of the issuer and can affect the value of bonds
and other debt securities held in a portfolio.
 Currency Risk: Currency risk, also known as exchange rate risk, arises from
fluctuations in exchange rates between currencies. For investors holding assets
denominated in foreign currencies, changes in exchange rates can impact the value of
their investments when translated back into their home currency.
 Interest Rate Risk: Interest rate risk refers to the risk that changes in interest rates will
affect the value of fixed-income investments such as bonds. When interest rates rise,
bond prices typically fall, and vice versa, leading to potential losses for bondholders.
EXPECTED RETURNS OF A PORTFOLIO

“DON’T PUT ALL YOUR EGGS IN THE ONE BASKET”

MEANING OF PORTFOLIO RETURNS.

Portfolio returns refer to the gains or losses generated by a portfolio of

investments over a specific period of time. It represents the overall performance
of an investment portfolio, taking into account of all the assets held within it.
These returns are typically measured in terms of a percentage increase or decrease
in the value of the portfolio relative to its initial investment.
METHODS TO ESTIMATE EXPECTED RETURNS
OF PORTFOLIO.
 Historical Returns: Analyzing the historical performance of the assets within the
portfolio and using this data to estimate future returns. However, it's important to note
that past performance does not guarantee future results.
 Capital Asset Pricing Model (CAPM): CAPM is a widely used model in finance that
estimates the expected return of an asset based on its risk relative to the overall market.
It considers the risk-free rate of return, the expected market return, and the asset's beta
(a measure of its volatility relative to the market).
 Arbitrage Pricing Theory (APT): APT is another asset pricing model that considers
multiple factors influencing asset returns, such as interest rates, inflation, and various
economic indicators.
 Analyst Forecasts: Analysts often provide forecasts for the future performance of
individual assets or sectors based on their research and analysis. Investors can use these
forecasts to estimate the expected returns of their portfolio.
 Simulation and Monte Carlo Analysis: These techniques involve running simulations
based on different scenarios and assumptions to estimate the range of possible portfolio
returns and their probabilities.

It's important to remember that expected returns are estimates and not guarantees. Actual
returns may vary due to unforeseen events, changes in market conditions, and other factors.
Importantly, investors should consider the level of risk associated with their portfolio when
estimating expected returns, as higher expected returns generally come with higher levels
of risk.
TYPES OF PORTFOLIO RETURNS.

 Total Portfolio Return: This represents the overall return generated by a portfolio over
a specific period, & may include Gains or Losses.
 Realized Return: Realized returns are the actual gains or losses realized by selling
assets within the portfolio & will Reflect in the evaluation of performance.
 Unrealized Return: Unrealized returns, also known as paper returns, represent the
gains or losses on assets that have not been sold & will not reflect in the evaluation.
 Absolute Return: Absolute return measures the total return of a portfolio without
comparing it to any benchmark or index.
 Relative Return: Relative return will also measure the total returns but by comparing
the performance of a portfolio to a benchmark or index.
FORMULA TO CALCULATE EXPECTED RETURNS
OF PORTFOLIO.
 The expected return of a portfolio can be calculated using a weighted average of the
expected returns of its individual assets.

∑ (Rp) = WA (RA) + WB (RB)

Where, ∑ (Rp) = Expected return from a portfolio of two securities.

WA = Proportion / Weights of Asset A

RA = Expected return of asset A
WB = Proportion / Weights of Asset B

RB = Expected return of Asset B.

• Example: Asset 1 with an expected return of 8% and a weight of 30%.
Asset 2 with an expected return of 6% and a weight of 50%.

Sol: E (Rp) = WA (RA) + WB (RB)

0.3 × 0.08 + 0.5 × 0.06
0.024 + 0.03
0.054 × 100
5.4%
Limitations of Expected Returns of Portfolio.

• Doesn't Guarantee real returns

• Based on Historical data
• Based on several Assumptions and thoughts
• Weighted Average can exclude various information.
THANK YOU!!