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6 Cards in this Set
- Front
- Back
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Increase in the level of risk results in an increase in management's required rate of return. Higher expected returns to compensation for greater risk.
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Risk-Averse Behavior |
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Increase in the level of risk does not result in an increase in management's required rate of return. Seek highest return
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Risk-Indifferent Behavior
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Increase in the level of risk results in a decrease in Management's required rate of return. Willing to settle for lower expected returns as the level of risk increases.
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Risk-Seeking Behavior
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Represents the portion of a single asset's risk that is associated with random causes and can be eliminated through diversification.
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Diversifiable Risk (nonmarket, unsystematic, or firm specific risk)
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Risk that affect all firms and cannot be eliminated through diversification. Ex: war, inflation, High IR, international incidents, and political evens, recessions.
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Nondiversifiable Risk (market or systematic risk)
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Foreign $ Domestic $ Net inflow net outflowDepreciation Appreciation Loss GainAppreciation Depreciation Gain Loss
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Foreign Currency chart of affects
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