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Unit 2: Risk and Return
Notes
Case Study Asian CERC – Last 6 Years
The average market prices and dividend per share of Asian CERC Ltd. for the past 6 years
are given below:
Year Average market price (`) Dividend per share (`)
68
2007 3.0
2006 61 2.6
2005 50 2.0
2004 53 2.5
2003 45 2.0
2002 38 1.8
What will be the average rate of return of Asian CERC Ltd.'s shares for past 6 years.
All possible questions which the investor may ask, the most important one is concerned with
the probability of actual yield being less than zero, that is, with the probability of loss. This is
the essence of risk. A useful measure of risk should somehow take into account both the
probability of various possible "bad" outcomes and their associated magnitudes. Instead of
measuring the probability of a number of different possible outcomes, the measure of risk
should somehow estimate the extent to which the actual outcome is likely to diverge from the
expected.
Two measures are used for this purpose: The average (or mean) absolute deviation and the
standard deviation.
Case Study Performance of Equity Shares at Wipro Ltd.
The rate of return of equity shares of Wipro Ltd., for past six years are given below:
Year 01 02 03 04 05 06
Rate of return (%) 12 18 -6 20 22 24
Calculate the average rate of return, standard deviation and variance.
Solution:
Calculation of Average rate of Return ( R )
R 12 18 6 20 22 24
R = N 6 15%
(R R) 2
2
......(1)
N
Contd...
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