Risk and Rate of Return
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| Potential variability in future cash flows. The likely variability associated with revenue or income streams. Risk can be measured as the standard deviation or beta. | Risk
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| The risk related to an investment return that can be eliminated through diversification. The result of factors that are unique to the particular firm. | Company-Unique Risk (Unsystematic Risk)
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| Diversification
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| Holding Period Returns
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| The relationship between an investment's return and the market's returns. This a measure of the investment's nondiversifable risk. | Beta
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| The relationship between a portfolio's returns and the market returns. It is a measure of the portfolio's nondiversifable risk. | Portfolio Beta
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| Identifying and selecting the asset classes appropriate for a specific investment portfolio and determining the proportions of those assets within the portfolio. | Asset Allocation
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| Minimum rate of return necessary to attract an investor to purchase or hold a security. | Required Rate of Return
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| The additional return expected for assuming risk. | Risk Premium
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| An equation stating that the expected rate of return on a project is a function of the risk free rate, the investment's systematic risk and the expected risk premium for the market portfolio of all risky securities. | Capital Asset Pricing Model (CAPM)
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| The return line that reflects the attitudes of investors regarding the minimum acceptable return for a given level of systematic risk associated with a security. | Security Market Line
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