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RISK AND RETURN

INTRODUCTION

The two key determinants or share/security prices are expected risk and expected return. The financial managers must understand these concepts as they have a hearing on the share prices as 1 as the valuation of the firm. This Chapter presents a framework for an explicit and quantitative understanding of these concepts and the nature of relationship between them.
The subject matter of this Chapter is divided into seven sections. The return and risk related to single security/asset are examined in Section 1. Section 2 covers portfolio risk and return. The ion of optimum portfolio is explained in Section 3. The theories/models, namely, Capital Pricing Model (CAPM), extended CAPM, and the Arbitrage Pricing Theory (APT) explaining relationship between the expected return and risk. are examined in sections 4 to 6 respectively. major points are summarized in Section 7.

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