Risk & Return Essay Example for Free

Risk Return Essay What are investment returns? What is the return on an investment that costs $1,000 and is sold after 1 year for $1,100? Investment returns is the expectation of earning money in the future on the amount of money invested. The return is the financial performance of the investment. The return is the difference between the amount invested and the amount you are returned after said investment. There are two ways to show return on investment. 1. By dollar return. Amount to be received – Amount invested = $1,100 $1,000 = $100 in return The problems with expressing returns in dollars, you don’t know the size of the investment for that dollar return and you don’t know the timing of the return. 2. Rate of Return or percentage returns Amount received – Amount invested / Amount invested = $100 / $1000 = . 10 = 10% The rate of return â€Å"standardizes† the dollar return by considering the timing b. (1) Why is the T-bill’s return independent of the state of the economy? Do T-bill’s promise a completely risk-free return? Beta coefficients are the weighted average of its individual securities’ betas. You will add each securities beta to find the portfolio’s beta. i. Suppose you have the following historical returns for the stock market and for the company P. Q. Unlimited. Explain how to calculate beta, and use the historical stock returns to calculate the beta for PQU. Interpret your results. See attached. Calculate betas using historical data. A regression line is fitted through the points of the market returns (x-axis) and company’s returns (y-axis) and the slope of that line provides an estimate of the stock’s beta.