Ch 12 Flashcards
Prove is discounted
Already accounted for in stock price
Innovation or surprise
The difference between the actual result and the forecast
Announcement
Expected part + surprise
Systematic risk
Risk that influences a large number of assets. Also called market risk.
Unsystematic risk
Risk that influences a single coma
My or a small group of companies. Also called unique or asset specific risk.
What risk is essentially eliminated by diversification
Unsystematic risk. Meaning a portfolio with many assets has no unsystematic risk
Can systematic risk be eliminated by diversification
No.
Total risk
Systematic risk + unsystematic risk
Systematic risk principle
The reward for bearing risk depends only on the systematic risk of an investment. The is no reward for bearing unsystematic risk.
Beta coefficient
Measure of the relative systematic risk of an asset. Assets with eats larger than 1 have more systematic risk than average
Security market line
Graphical representation of the linear relationship between systematic risk and expected return in financial markets
Capital asset pricing model
A theory of risk Dan return for securities in a competitive capital market
Capm says that the expected return for an asset depends on three things
- The pure time value of money
- The reward for bearing systematic risk
- The amount of systematic risk
Covariance
A measure of the tendency of two things to move or vary together
To dimensions of investing
Risk and return
