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### 17 Cards in this Set

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• Back
 Annual percentage rate (APR) Interest rate is annualized using simple rather than compound interest. Conditional tail expectation Expectation of a random variable conditional on it falling below some threshold value. Often used as a measure of down-side risk. Dividend yield The percent rate of return provided by a stock's dividend payments. Effective annual rate (EAR) Interest rate is annualized using compound rather than simple interest. Event tree Depicts all possible sequences of events. Excess return Rate of return in excess of the risk-free rate. Kurtosis Measure of the fatness of the tails of a probability distribution. Indicates probability of observing extreme high or low values. Lognormal distribution The log of the variable has a normal (bell-shaped) distribution. Lower partial standard deviation Standard deviation computed using only the portion of the probability distribution below the mean of the variable. Nominal interest rate The interest rate in terms of nominal (not adjusted for purchasing power) dollars. Normal distribution Bell-shaped probability distribution that characterizes many natural phenomena. Real interest rate The excess of the interest rate over the inflation rate. The growth rate of purchasing power derived from an investment. Risk-averse, risk-neutral, risk lover A risk-averse investor will consider risky portfolios only if they provide compensation for risk via a risk premium. A risk-neutral investor finds the level of risk irrelevant and considers only the expected return of risk prospects. A risk lover is willing to accept lower expected returns on prospects with higher amounts of risk. Risk premium An expected return in excess of that on riskfree securities. The premium provides compensation for the risk of an investment. Risk-free rate The interest rate that can be earned with certainty. Skew Measure of the asymmetry of a probability distribution. Value at risk Measure of down-side risk. The loss that will be incurred in the event of an extreme adverse price change with some given, typically low, probability.