Term
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Definition
| Return on a risky assets expected in the futuree |
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Term
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Definition
| as the differece between the return on risky investment and that on a risky-free investment and we calculated the historical risk premium on same difference investment |
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Term
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Definition
| as the differences between the expected return on risk investment and the certain return on a risk-free investment |
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Term
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Definition
Expected return − Risk free ratio
E(RU) --- RF |
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Term
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Definition
| on a security or other asset is simple equal to the sum of the possible return multiplied by their probabilities |
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Term
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Definition
| = Sum of the possible return X probabilities |
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Term
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Definition
1. determine the squared deviations from the expected return
2. multiply each possible squared deviation by its probability
3. the standard deviation as always is the square root of the variance |
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Term
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Definition
| σ2u= .50 X (10)2 + .50 X (-10)2 = .01 |
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Term
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Definition
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Term
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Definition
| group of asset such as stocks and bonds held by an investor |
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Term
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Definition
| % of a portfolios total value in particular asset |
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Term
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Definition
1st asset = 50
2nd asset = 150
50 + 150 = 200
% of 1st asset = 50/200
% of 2nd asset = 150/200
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Term
| Portfolio Expected Return |
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Definition
more directly
Work no matter how many assets there are in portofolios
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Term
| Annoucement Surprise and Expected Return |
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Definition
| have measured volatility by looking at the difference between the actual return on an asset or portfolio, R and the expected return (E(R)) |
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Term
| Expected and Unexpected Return |
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Definition
| The return on anyt stock traded in a financial market is composed of two part |
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Term
| Financial Market is composed of two parts |
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Definition
1. the normal or expected return from the stock is the part of the return that share holders in the market predict or expect
2. of the return on the sock is the uncertain or risky part |
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Term
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Definition
Expected Return + Unexpected Return
R= E(R) + U |
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Term
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Definition
| will be positive or negative |
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Term
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Definition
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Term
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Definition
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Term
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Definition
| impact depends on how much of that figurae is new information |
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Term
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Definition
- The use of the word (discount here is different from the use of the term in computing (PV) but the sprit is the same here
- this difference between the actual results and the forecast, one %$ point
- innovation or suprise
- Less an impact on the market because the market already knew much of it
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Term
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Definition
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Term
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Definition
| A risk that influences a large number or asset ( Market Risk) |
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Term
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Definition
| A risk that affects at most a small number of assets ( unique or asset- specfici risk) |
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Term
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Definition
| of the return, that portion resulting from surpise is the true risk of any investment |
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Term
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Definition
| Even the most norrow and peculiar bit of news about comapny ripples through the economy |
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Term
| Math: Components of Return |
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Definition
R = E(R) + U
or
R= E(R) + Systematic portion + Unsystematic portion |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
| Effect of diversification |
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Definition
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Term
| Standard deviation Decrease |
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Definition
| as the number of securities is increase |
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Term
| The Effect of diversification |
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Definition
| The small differences exists because the portfolio securities and time period |
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Term
| Principles of Diversification |
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Definition
| The process of spreading an investment across assets (and thereby forming a portfolio) is called diversification |
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Term
| Meaning of Principles of diversification |
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Definition
| spreading an investment across a number of asset will eliminate some, but not all of the risk |
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Term
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Definition
| one that is particular to a single assets or at most a small group |
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Term
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Definition
| is essentially eliminated by diversification, so a relatively large portfolio has almost no unsystematic risk |
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Term
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Definition
| almost all assets to some degree |
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Term
| Systematic risk and non-diversifiable |
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Definition
| risk are used interchangeable |
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Term
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Definition
| Systematic Risk + Unstematic Risk |
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Term
| Other names for Systematic Risk |
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Definition
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Term
| Other names for Unsystematic Risk |
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Definition
diversifiable risk
Unique risk
asset-specific risk |
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Term
| Meaning of Systematic Risk |
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Definition
| The expected retrun on a risky asset depends only on that asset's sysematic risk |
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Term
| Since unsystematic risk can be |
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Definition
| eliminated at virtually no cost ( by diversificyng), there is no reward for bearing it |
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Term
| Expected Return on Assets |
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Definition
| depends only on that asset's sysematic risk |
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Term
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Definition
- amount of systematic risk present in a particular risky asset relative to that in average asset
- tell us how much systematic risk a particular asset has relative to an average asset
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Term
| Expect Return and thus the risk premium |
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Definition
| on an depends only on its systematic risk |
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Term
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Definition
| can be calculated just like a portfolio expected return |
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Term
| If we had a large number of assets in a portfolio |
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Definition
| we would multiply each assets by beta by its portfolio weight and then add the result up to get the portfolio's beta |
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