Aprilia Fransiska Dawi

14202000066
Management - International Business
1 Risk in financial is a terms that shows an outcome in investments or financial that the gains from it is actually d
as a losing some or all original investments. The reason why decision maker need some sense of risk is so tha
and costly loses. Example of assets that have perfectly certain returns is properties and gold.

2 Return on investment (ROI) is an approximate measure of an investment's profitability.

ROI is calculated by subtracting the initial value of the investment from the final value of the investment (which equals th
then dividing this new number (the net return) by the cost of the investment, then finally, multiplying it by 100.
The Calculation :

ROI = Cost of Investment : Net Return on Investment × 100%

The difference between realized and unrealized returns is that realized returns result from the actual sale of th
while unrealized returns occur when the asset is not sold and result from a change in the market price.

3 - Risk indifference (Neutral) : The person doesnt care about the risks involved in decision making and they onl
- Risk Seeking : a person willing to take higher risk to achieve above average returns. The person making this
Most managers in corporate are significantly more risk-averse because corporate incentives and control proce

4 Standard deviation of asset return indicate the volatility or risk.

Standard deviation is for determine the market volatility or the spread
of asset price from the average price. When prices move widly, so the
standard deviation is high it means the investment will be risky. And
low standard deviation means investment come with low risk

5 because the asset portfolio in the form of a stock portfolio is intended to reduce unsystematic risk, namely the
An efficient portfolio is defined as a portfolio with the highest return at a certain risk, or a portfolio with the lowe
at the desired level with the minimum risk". To minimize risk, it is necessary to diversify in investing, namely for
but in several assets and The standard deviation reflects the total risk of an investment portfolio. The total risk
risk originating from the portfolio itself. The larger the standard deviation, the greater the risk of the mutual fund

6 Beta is a measure of the volatility-or systematic risk-of a security or portofolio compared to the market as a wh
, which describes the relationship between systematic risk and expected return for assets which usually is a st
Beta could be calculated by first dividing the security's standard deviation of returns by the benchmark's standa
 that the gains from it is actually different from the expected gains, its can also be determined
need some sense of risk is so that they can manage investments well and avoid any unnecesarry
erties and gold.

e of the investment (which equals the net return),

lly, multiplying it by 100.

estment × 100%

s result from the actual sale of the asset,

ange in the market price.

in decision making and they only concerned for the end result. A risk indifference will choose the assests with the highest possible gains or
returns. The person making this type of decision should weigh all the factors involved in the risk and assess these riskd against the probab
rate incentives and control processes actively discourage managers from taking risks.

e unsystematic risk, namely the risk associated with each investment instrument.
n risk, or a portfolio with the lowest risk at a certain return. "Getting results (return)
diversify in investing, namely forming a portfolio or investing funds not only in one asset
vestment portfolio. The total risk referred to is systematic risk (market risk) as well as
greater the risk of the mutual fund.

compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM)
n for assets which usually is a stocks.
eturns by the benchmark's standard deviation of returns. the resulting value is multiplied by the correlation of the security's returns and the b
h the highest possible gains or return without taking into account possible outcomes
hese riskd against the probabilities of different outcomes.

the security's returns and the benchmark's returns.

1.
a. These are stocks from the most risky to the least risky
Stock B (1.40)
Stock A (0.80)
Stock C (-0.30)

b.

Stock β (beta) Ermkt Rf E(ri)

A 0.8 12% - 9.6%
B 1.40 12% - 16.8%
C -0.30 12% - -3.6%

c.

Stock β (beta) Ermkt Rf E(R)

A 0.8 -5% - -4%
B 1.40 -5% - -7%
C -0.30 -5% - 1.5%

d. Stock C, since its beta is negative, as the market declines, you can earn higher yields.

e. Stock B, since it has the highest beta which makes it the most risky but also yields higher results when the stock marke
 E(ri) = Rf + βi​( Ermkt - Rf)

lts when the stock market is rising.

 Find the required return for each cases with CPAM
2 Case A formula
Rf 5%
E(ri) = Rf + βi​( Ermkt - Rf)
Ermkt 8%
Beta 1.3

E(rA) 9%

Case B Case D
Rf 8% Rf 10%
Ermkt 13% Ermkt 15%
Beta 0.9 Beta 1

E(rB) 13% E(rD) 15%

Case C Case E
Rf 9% Rf 6%
Ermkt 12% Ermkt -10%
Beta -0.2 Beta 0.6

E(rC) 8% E(rE) -4%

+ βi​( Ermkt - Rf)
3.a. Find the required return for an asset with a beta of .90 when the risk0free rate and market
return are 8 and 12 percent, respectively

ERi​=Rf​+βi​(ERm​−Rf​) Rf​=risk-free rate

βi​=beta of the investment
Rf = 8% (ERm​−Rf​)=market risk premium​
βi​= 0.90
ERm = 12%
ERi = ???

Calculatiton :
ERi​= Rf​+βi​(ERm​−Rf​)
ERi​= 8% + 0.90 (12% - 8% )
ERi​= 8% + 0.90 (4%)
ERi​= 8% + 3,6%
ERi​= 11.60%

b. Find the risk-free rate for a firm with a required return of 15% and a beta of 1.25 when the
market return is 14%.

ERi​=Rf​+βi​(ERm​−Rf​) Rf​=risk-free rate

βi​=beta of the investment
Rf = ??? (ERm​−Rf​)=market risk premium​
βi​= 1.25
ERm = 14%
ERi = 15%

Calculatiton :
ERi​= Rf​+βi​(ERm​−Rf​)
15 % = Rf+ 1.25 (14% - Rf )
- Rf ​= 1.25 (14% - Rf ) - 15%
Rf ​= 15% - 1.25 (14% - Rf )
Rf ​= 15% - 17.5% + 1.25 Rf
Rf - 1.25 Rf = - 2.5 %
0.25 Rf = 25%
Rf ​= 10%

the risk-free rate is 9%.

ERi​=Rf​+βi​(ERm​−Rf​)
ERi = 0.16 Using CAPM,

Rf = 0.09 ERi = Rf + β (Rm – Rf)

β = 1.10 0.16 = 0.09 + 1.10 (Rm – 0.09)

0.16 = 0.09 + 1.10Rm – 0.099

 1.10Rm = 0.169

Rm = 0.1536 or 15.36%

D) ERi = 0.15 Using CAPM,

Rf = 0.10 ERi= Rf + β (Rm – Rf)

Rm = 0.125 0.15 = 0.10 + β (0.125 – 0.10)

0.05 = 0.025β

β = 0.5
rate and market

1.25 when the

4. a. Calculating the annual rate of return of each asset and the average annual return on asset
Year Cash Flow Asset X (Beggining of The Year)
1988 1.000 20.000
1989 1.500 22.000
1990 1.400 21.000
1991 1.700 24.000
1992 1.900 22.000
1993 1.600 23.000
1994 1.700 26.000
1995 2.000 25.000
1996 2.100 24.000
1997 2.200 27.000

Year Cash Flow Asset Y (Beggining of The Year)

1988 1.500 20.000
1989 1.600 20.000
1990 1.700 20.000
1991 1.800 21.000
1992 1.900 21.000
1993 2.000 22.000
1994 2.100 23.000
1995 2.200 23.000
1996 2.300 24.000
1997 2.400 25.000

b Variance & Standar Deviation statement asset X

Year Return on Asset X Return - Mean
1988 0.15 0.03
1989 0.02 -0.09
1990 0.21 0.09
1991 -0.01 -0.13
1992 0.13 0.01
1993 0.20 0.08
1994 0.03 -0.09
1995 0.04 -0.08
1996 0.21 0.10
1997 0.19 0.08
Total 1.17
Mean 0.12
Standar Deviation 0.09
c Whic Asset seems to be preferable?
Better Junior add to Asset Y due to the risk and return rate that already show ,
it means the Asset Y is Small risk and for the return we think will be not diffrent with X it's just 2,2% Difference w

d CAPM

BassetX = 1.60 E(rX) = 0.07 + ((1.60*0,1)-0.07)

BassetY = 1.10
Risk Free Rate = 7% E(rY) = 0.07 + ((1.10*0,1)-0.07)
Market Return = 10%

e Based on our finding in C and D, we recommend Junior to invest in the asset Y because the ass
the risk is also not that big. The differences of asset expected return between investment X and Y

f(1) f(2)
E(ri) = rf + Bi (Ermkt)-rf) E(ri) = rf + Bi(Ermkt) - rf)
BassetX = 1.60 BassetX = 1.60
BassetY = 1.10 BassetY = 1.10
Risk Free Rate = 8% Risk Free Rate = 7%
Market Return = 11% Market = 9%

E(rX) = 0.08 + 1.60*(0.11-0.08) E(rX) = 0.07 + 1.60* (0.09-0.07)

12.80% 10.20%

E(rY) = 0.08 + 1.10*(0.11-0.08) E(rY) = 0.07 + 1.10* (0.09-0.07)

11.30% 9.20%
n asset
Asset X (End Of the year) Annual Rate of Return Asset Y
22.000 0.15
21.000 0.02
24.000 0.21
22.000 -0.01
23.000 0.13
26.000 0.20
25.000 0.03
24.000 0.04
27.000 0.21
30.000 0.19

Average annual return of Asset X 11.74%

Asset Y (End Of the year) Annual Rate of Return Asset Y

20.000 0.08
20.000 0.08
21.000 0.14
21.000 0.09
22.000 0.14
23.000 0.14
23.000 0.09
24.000 0.14
25.000 0.14
25.000 0.10
Average annual return of Asset Y 11.14%

Variance & Standar Deviation s

(Return - Mean)^2 Year
0.0011 1988
0.0090 1989
0.0085 1990
0.0169 1991
0.0002 1992
0.0068 1993
0.0082 1994
0.0060 1995
0.0091 1996
0.0057 1997
Total
0.0713 Mean
Standar Deviation
dy show ,
it's just 2,2% Difference with Y

0.16

0.11

sset Y because the asset offer expected return of the asset is pretty good and
Y is 0.015 which is not that big of different

Bi(Ermkt) - rf)

07 + 1.60* (0.09-0.07)

07 + 1.10* (0.09-0.07)
 Year Profit of The Year
1988 -2.000
1989 1.000
1990 -3.000
1991 2.000
1992 -1.000
1993 -3.000
1994 1.000
1995 1.000
1996 -3.000
1997 -3.000

Average Annual Profit -1.000

Year Profit of The Year

1988 0.00
1989 0.00
1990 -1.00
1991 0.00
1992 -1.00
1993 -1.00
1994 0.00
1995 -1.00
1996 -1.00
1997 0.00
Average Annual Profit 500.00

Variance & Standar Deviation statement asset Y

Return on Asset Y Return - Mean (Return - Mean)^2
0.08 -0.04 0.0013
0.08 -0.03 0.0010
0.14 0.02 0.0006
0.09 -0.03 0.0007
0.14 0.03 0.0007
0.14 0.02 0.0006
0.09 -0.02 0.0004
0.14 0.03 0.0008
0.14 0.03 0.0007
0.10 -0.02 0.0002
1.11
0.11 0.0070
0.03
(Return - Mean)^2
0.0013
0.0010
0.0006
0.0007
0.0007
0.0006
0.0004
0.0008
0.0007
0.0002

0.0070
 A
INV DATE INVESMENT VALUE GAIN
12/1/2011 Rp1,500,000.00 1,640,000 140,000
12/1/2012 Rp1,700,000.00 1,520,000 -180,000
12/1/2013 Rp2,100,000.00 2,200,000 100,000
12/1/2014 Rp2,400,000.00 2,800,000 400,000
12/1/2015 Rp3,000,000.00 3,100,000 100,000
BMRI JK
12/1/2016 Rp3,600,000.00 3,900,000 300,000
12/1/2017 Rp4,200,000.00 4,050,000 -150,000
12/1/2018 Rp4,700,000.00 5,100,000 400,000
12/1/2019 Rp5,500,000.00 5,800,000 300,000
12/1/2020 Rp6,100,000.00 6,400,000 300,000

INV DATE INVESMENT VALUE GAIN

12/1/2011 Rp500,000.00 600,000 100,000
12/1/2012 Rp1,700,000.00 1,600,000 -100,000
12/1/2013 Rp1,000,000.00 1,100,000 100,000
12/1/2014 Rp2,000,000.00 2,300,000 300,000
12/1/2015 Rp2,200,000.00 2,400,000 200,000
ARTO JK
12/1/2016 Rp3,100,000.00 3,700,000 600,000
12/1/2017 Rp3,800,000.00 4,200,000 400,000
12/1/2018 Rp5,900,000.00 6,000,000 100,000
12/1/2019 Rp7,000,000.00 7,900,000 900,000
12/1/2020 Rp7,500,000.00 8,100,000 600,000

B
TOTAL RETURN Weight In The Portofolio
9.33% 0.3
-10.59% 0.3
4.76% 0.3
16.67% 0.3
3.33% 0.3
BMRI JK
8.33% 0.3
-3.57% 0.3
8.51% 0.3
5.45% 0.3
4.92% 0.3

TOTAL RETURN Weight In The Portofolio

20.00% 0.7
-5.88% 0.7
10.00% 0.7
15.00% 0.7
9.09% 0.7
ARTO JK
19.35% 0.7
ARTO JK
10.53% 0.7
1.69% 0.7
12.86% 0.7
8.00% 0.7

C
INV DATE TOTAL RETURN
12/1/2011 9.33%
12/1/2012 -10.59%
12/1/2013 4.76%
12/1/2014 16.67%
12/1/2015 3.33%
BMRI JK
12/1/2016 8.33%
12/1/2017 -3.57%
12/1/2018 8.51%
12/1/2019 5.45%
12/1/2020 4.92%
AVERANGE 4.72%

INV DATE TOTAL RETURN

12/1/2011 20.00%
12/1/2012 -5.88%
12/1/2013 10.00%
12/1/2014 15.00%
12/1/2015 9.09%
ARTO JK
12/1/2016 19.35%
12/1/2017 10.53%
12/1/2018 1.69%
12/1/2019 12.86%
12/1/2020 8.00%
10.06%

D
VARIANCE COVARIANCE
BMRI JK 0.55%
3%
ARTO JK 0.61%

E
inflation rate from the Bank Indonesia website for year 2020 (for Risk-free rate).
Find the Beta for both stocks using the CAPM formula.
A
DAYS INVESTED TOTAL RETURN ANNUALIZED RETURN
10/11/2011 9.33% 0.09
1/5/2012 -10.59% -0.02
7/6/2013 4.76% -0.06
4/11/2014 16.67% 0.22
8/9/2015 3.33% 0.21
9/3/2016 8.33% 0.12
16/11/2017 -3.57% 0.04
17/11/2018 8.51% 0.05
18/11/2019 5.45% 0.14
19/11/2020 4.92% 0.11

DAYS INVESTED TOTAL RETURN ANNUALIZED RETURN

4/5/2011 20.00% 0.09
7/4/2012 -5.88% 0.13
10/8/2013 10.00% 0.04
17/9/2014 15.00% 0.26
12/4/2015 9.09% 0.25
6/11/2016 19.35% 0.30
4/2/2017 10.53% 0.32
25/6/2018 1.69% 0.12
9/7/2019 12.86% 0.15
19/11/2020 8.00% 0.22

B
Weight In The Portofolio Expected Return
0.3
0.3
0.3
0.3
0.3
14.15%
0.3
0.3
0.3
0.3
0.3

Weight In The Portofolio Expected Return

0.7
0.7
0.7
0.7
0.7
70.45%
0.7
 70.45%
0.7
0.7
0.7
0.7

C
TOTAL RETURN
9.33%
-10.59% TOTAL RETURN
4.76% 9.33%
16.67% -10.59%
3.33% 4.76%
8.33% 16.67%
-3.57% 3.33%
8.51% 8.33%
5.45% -3.57%
4.92% 8.51%
4.72% 5.45%
STANDAR DEVIATION
4.92%
20.00%
7.70%
-5.88%
TOTAL RETURN 10.00%
20.00% 15.00%
-5.88% 9.09%
10.00% 19.35%
15.00% 10.53%
9.09% 1.69%
19.35% 12.86%
10.53% 8.00%
1.69%
12.86%
8.00%
10.06%

D
COVARIANCE
3%

E
Risk-free rate). Find the annual stock return of the Jakarta Stock Exchange (^JK
 L RETURN
9.33%
10.59%
4.76%
6.67%
3.33%
8.33%
3.57%
8.51%
5.45%
VARIANCE
4.92%
0.00%
0.62%
5.88%
0.00%
5.00%
9.09%
9.35%
0.53%
1.69%
2.86%
8.00%

rta Stock Exchange (^JKSE) for year 2020.