Fin 331-Ch 8-Griffith

diversifiable risk

portion of a security's stand-alone risk than can be eliminated through proper diversification

ROR - expected returns that number squared then those numbers added then the square root of the sum

standard deviation

less risk than average

beta<1

risky as average

beta=1

riskier than average

beta>1

risk aversion

dislike risk and require higher rates of return as an inducement to buy riskier securities

rise of Google terrorist attacks of 2001 financial crisis of 2008

examples of black swan events

prob x ROR

expected returns

more risk seeking

flatter slope line

risk return trade off

higher risk, higher reward

black swan event

highly improbable event that is unpredictable and has a massive economic impact

probability distributions

listings of possible outcomes or events with a probability assigned to each outcome

coefficient of correlation

measures the degree of relationship between two variables

market risk

portion of a security's stand-alone risk than cannot be eliminated through diversification. Measured by beta

the relevant riskiness of a stock is its contribution to the riskiness of a well diversified portfolio

primary conclusion of the CAPM

coefficient of variation

shows the risk per unit of return

more risk averse

steeper slope line

risk

the chance that some unfavorable event will occur

expected portfolio returns

the weighted average of the expected returns on the assets help in the portfolio

stock, but it also has higher risk

what offers higher return, stock or bond?