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22 Cards in this Set
- Front
- Back
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Risk
page 246 |
The chance that some unfavorable event will occur.
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Stand-Alone Risk
page 246 |
The risk an investor would face if he or she held only one asset.
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Probability Distributions
page 247 |
A listing of all possible outcomes, or events, with a probability (chance of occurrence) assigned to each outcome.
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Expected Rate of Return, r^
page 248 |
The rate of retun expected to be realized from an investment; the weighted average of the probability distribution of possible results.
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Standard Deviation
page 251 |
A statistical measure of the variability of a set of observations.
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Variance
page 251 |
The square of the standard deviation.
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Coefficient of Variation (CV)
page 254 |
Standardized measure of the risk per unit of return; calculated as the standard deviation divided by the expected return.
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Risk Aversion
page 255 |
Risk-adverse investors dislike risk and require higher rates of return as an inducement to buy riskier securities.
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Risk Premium (RP)
page 256 |
The difference between the expected rate of return on a given risky asset and that on a less risky asset.
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Expected Return on a Portfolio
page 258 |
The weighted average of the expected returns on the assets held in the portfolio.
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Realized Rate of Reutn
page 258 |
The return that was actually earned during during some past period. The actual return usually turns out to be dfferent from the expected return except for riskless assets.
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Correlation
page 259 |
The tendency of two variables to move together.
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Correlation Coefficient
page 259 |
A measure of the degree of relationship between two variables.
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Market Portfolio
page 264 |
A portfolio consisting of all stocks.
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Diversifiable Risks
page 264 |
That part of a security's risk associated with random events; it can be eliminated by proper diversification.
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Market Risk
page 264 |
That part of a security's risk that cannot be eliminated by diversification.
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Capital Asset Pricing Model (CAPM)
page 264 |
A model based on the proposition that any stock's required rate of return is equal to the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification.
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Relevant Risk
page 265 |
The risk of a security that cannot be diversified away. This is the risk that affects portfolio risk and thus is relevant to a rational investor.
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Beta Coefficient
page 266 |
A metric that shows the extent to which a given a stock's returns move up and dwon with the stock market. Beta thus measures market risk.
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Market Risk Premium (RPm)
page 271 |
The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk.
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Security Market Line (SML) Equation
page 273 |
An equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities.
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Security Market Line (SML)
page 274 |
The line on a graph that shows the relationship between risk as measured by beta and the required rate of return for individual securities.
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