Risk & Return
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each of the black spaces below before clicking
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| Expected Return | weighted avg of all possible returns, weighted by probability that each return will occur
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| Required return | min return necessary to attract investor to buy/hold security
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| Standard Deviation | measures return volatility, measure dispersion of possible outcomes (square root of the variance)
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| Beta Coefficient | measures asset’s systematic risk, how individual stock’s returns vary w/ market returns
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| Beta = 1 | asset has SAME systematic risk as overall market
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| Beta > 1 | asset has MORE systematic risk than overall market
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| Beta < 1 | asset has LESS systematic risk than overall market
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| Variance | (measures volatility) avg squared deviation between actual returns & avg return (sigma squared)
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| Systematic Risk | risk affects large number (non-diversifiable, market risk)
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| Unsystematic Risk | risk affects small number (diversifiable, unique, idiosyncratic)
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| Diversification | assets combined to cancel out unsystematic risks, (from diff sectors)
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| Total Risk = | systematic risk + unsystematic risk
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| Security Market Line | representation of market equilibrium between risk & return
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| SML slope | market risk premium (reward-to-risk ratio)
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| CAPM | defines relationship between risk & return (Capital Asset Pricing Model)
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| Historical Variance | sum squared dev from mean / (number of observations - 1)
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| Total dollar return = | investment income + capital gain (or loss) due to price change
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| Dividend Yield = | income / beginning price
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| Capital Gains Yield = | (end price - begin price)/ begin price
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| Total Percentage Return = | Dividend Yield + Capital Gains Yield
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| Capital Asset Pricing Model | defines relationship between risk & return
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| Risk Premium = | expected return - risk free rate
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| Risk-Free Rate | interest rate of short-term government bonds
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| EMH | Efficient Market Hypothesis
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| Strong Form Efficiency | prices reflect ALL info (public & private)
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| Semi-Strong Form Efficiency | prices reflect PUBLIC info
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| Weak Form Efficiency | reflect PAST market info (price & volume)
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Created by:
grpdish
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