公司理财资料.pptVIP

COPYRIGHT?ZHULI Chapter 11 Risk, return, and capital budgeting Objectives Measure and interpret the market risk, or beta, of a security Relate the market risk of a security to the rate of return that investors demand Calculate the opportunity cost of capital for a period Content Measuring market risk Risk and return Capital budgeting and project risk Market portfolio: portfolio of all assets in the economy. In practice a broad stock market index is used to represent the market Beta or β: sensitivity of a stock’s return to the return on market portfolio Measuring beta The procedure for measuring companies’ betas Observe rates of return, usually monthly, for the stock and the market Plot the observations Fit a line showing the average return to the stock at different market returns Bata is the slope of the fitted line. Portfolio betas Content Measuring market risk Risk and return Capital budgeting and project risk The security market line How well does the CAPM work? CAPM is too simple to capture everything that is going on in the market However, the CAPM captures in a simple way two fundamental ideas Almost everyone agrees that investors require some extra return for taking on risk Investors appear to be concerned principally with the market risk that they cannot eliminate by diversification. Financial managers rely on the capital asset pricing model as a good rule of thumb Using the CAPM to estimate expected returns Content Measuring market risk Risk and return Capital budgeting and project risk Company versus project risk Company cost of capital: expected rate of return demanded by investors in a company, determined by the average risk of the company’s securities Project cost of capital: minimum acceptable expected rate of return on a project given its risk Determinants of project risk Projects that involve high fixed costs tend to have higher betas What matters is the strength of the relationship between the firm’s earnings and the aggregate earni