Chapter 13 Flashcards
How can the expected return of a stock be calculated?
E(R)=(R1•p)+(R2•p2)
How may we calculate the risk premium?
Risk Premium= Expected return - Risk free rate
How do we calculate the variance of a stock
Variance= p1•(R-E(R))^2…
What type of risk is considered diversifiable?
Unsystematic risk
If an announcement within the markets is already priced in, what is it called?
Discounted
What is systematic risk?
Risk that influences a large amount of assets
What is meant by the systematic risk principal
The reward for bearing risk depends, only on the systematic risk there for all expected return is dependent on systematic risk
How do we measure systematic risk?
Using the beta coefficient
What is the beta of an average asset?
One
In what case me an asset exceed 100% of a portfolio
The purchase of the asset is borrowed at the risk free rate
What is an example of an asset with a beta of zero
A short term, T-bill, or anything that is representative of a risk free asset
