Learn how to calculate risk and return on portfolio of securities in a firm. Return on Portfolio: The expected return from a portfolio of two or more securities is equal to the weighted average of the expected returns from the individual securities. Σ(RP) = WA(RA) + WB(RB) Where, Σ(Rp) = Expected return from a portfolio of two securities WA = [...]
This article throws light upon the four main sections of risk and return relationship. The sections are: 1. Risk and Return of a Single Asset 2. Risk and Return of a Portfolio 3. Capital Asset Pricing Model (CAPM) 4. Arbitrage Pricing Theory. Section # 1. Risk and Return of a Single Asset: Return on Investment: Return from a venture is [...]
This article throws light upon the top four asset pricing implications of CAPM. 1. The CAPM has asset pricing implications because it tells what required rate of return should be used to find the present value of an asset with any particular level of systematic risk (beta). In equilibrium, every asset's expected return and systematic risk coefficient should plot as [...]