definitions of investment appraisal,portfolio theory,types of investment appraisal,riskiless asset,risky asset,beta of portfolio I have compiled point to pint definition, hope you like it.
1. Investment Appraisal
The process of evaluating an investment opportunity. It is an essential part of the process of capital budgeting. Some of the methods used for investment appraisal are payback, average rate of return, net present value and internal rate of return.
a. Steps of an Investment Appraisal
An investment appraisal can be broken down into the following basic steps:
i.Identify the need or problem, set in the context of the University's strategies and define the objectives of the project
ii.Identify the options
iii.Assess the cost and benefits, financial and otherwise, of each option
iv.Analysis of non financial benefit
v. Financial Analysis - Calculation of Net Present Value over an appropriate time period
vi.Consider risk and uncertainty
vii.Presentation of results and assessment of affordability
www.indiainfoline.com/bisc/jama/jmmi.h...
http://www.qub.ac.uk/bo/man-acc/inv-app....
2. Portfolio Theory
Originally developed by Harry Markovitz in the early 1950's, Portfolio Theory - sometimes referred to as Modern Portfolio Theory - provides a mathematical framework in which investors can minimize risk and maximize returns. The central plank of the theory is that diversifying holdings can reduce risk, and that returns are a function of expected risk.
www.cperformance.com/glossary.htm
The process for establishing an optimal (or efficient) portfolio generally uses historical measures for:
i. returns,
ii. risk (standard deviation) and
iii.correlation coefficients
http://www.moneyonline.co.nz/calculator/...
Modern portfolio theory (MPT)鈥攐r portfolio theory鈥攚as introduced by Harry Markowitz with his paper "Portfolio Selection," which appeared in the 1952 Journal of Finance. Thirty-eight years later, he shared a Nobel Prize with Merton Miller and William Sharpe for what has become a broad theory for portfolio selection.
http://www.riskglossary.com/link/portfol...
3. Types of Investment Appraisal
i.Payback Period
ii.Accounting Rate of Return (ARR)
iii.Internal Rate of Return (IRR)
iv.Profitability Index
v. Net Present Value (discounted cash flow
http://www.bized.ac.uk/educators/16-19/b...
4. Riskless Asset
An asset whose future return is known with certainty. However, even these assets are subject to inflation risk. also called risk-free asset.
http://www.investorwords.com/4301/riskle...
http://www.stanford.edu/~wfsharpe/mia/rr...
5.Risky Asset
An asset whose future return is uncertain.
http://www.specialinvestor.com/terms/126...
6.Portfolio of Beta
a. Used in the context of general equities. The beta of a portfolio is the weighted sum of the individual asset betas, According to the proportions of the investments in the portfolio. E.g., if 50% of the money is in stock A with a beta of 2.00, and 50% of the money is in stock B with a beta of 1.00,the portfolio beta is 1.50. Portfolio beta describes relative volatilityof an individual securities portfolio, taken as a whole, as measured by the individual stock betas of the securities making it up. A beta of 1.05 relative to the S&P 500 implies that if the S&P's excess return increases by 10% the portfolio is expected to increase by 10.5%.
http://financial-dictionary.thefreedicti...
b. The beta of the portfolio is the weighted average of the individual asset betas where the weights are the portfolio weights."
Duke University
"Asset Pricing and Risk Management," (Harvey, Nov. 27, 1995)
http://www.duke.edu/~charvey/Classes/ba3...
The beta of the portfolio is the weighted average of the individual asset betas where the weights are the portfolio weights."
Duke University
"Asset Pricing and Risk Management," (Harvey, Nov. 27, 1995)
http://answers.google.com/answers/thread...
c. Beta is the sensitivity of a stock's returns to the returns on some market index (e.g., S&P 500). Beta values can be roughly characterized as follows:
i. b less than 0: Negative beta is possible but not likely. People thought gold stocks should have negative betas but that hasn't been true.
ii.b equal to 0: Cash under your mattress, assuming no inflation
iii. beta between 0 and 1:Low-volatility investments (e.g., utility stocks)
iv. b equal to 1:Matching the index (e.g., for the S&P 500, an index fund)
v. b greater than 1
Anything more volatile than the index (e.g., small cap. funds)
vi.b much greater than 1 (tending toward infinity)
http://invest-faq.com/articles/analy-bet... |
