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### 22 Cards in this Set

• Front
• Back
 Risk page 246 The chance that some unfavorable event will occur. Stand-Alone Risk page 246 The risk an investor would face if he or she held only one asset. Probability Distributions page 247 A listing of all possible outcomes, or events, with a probability (chance of occurrence) assigned to each outcome. 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. Standard Deviation page 251 A statistical measure of the variability of a set of observations. Variance page 251 The square of the standard deviation. 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. Risk Aversion page 255 Risk-adverse investors dislike risk and require higher rates of return as an inducement to buy riskier securities. 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. Expected Return on a Portfolio page 258 The weighted average of the expected returns on the assets held in the portfolio. 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. Correlation page 259 The tendency of two variables to move together. Correlation Coefficient page 259 A measure of the degree of relationship between two variables. Market Portfolio page 264 A portfolio consisting of all stocks. Diversifiable Risks page 264 That part of a security's risk associated with random events; it can be eliminated by proper diversification. Market Risk page 264 That part of a security's risk that cannot be eliminated by diversification. 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. 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. 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. 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. 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. 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.