F12+F13

Question 1

probability distribution

Answer 1

probability that the return will happen

Question 2

what does variance measure in the contest of return?

Answer 2

how spread out the return is

measures the risk to go up or down

Question 3

realized return

Answer 3

ex post
return that actually occurred over time
=capital gain and dividend yield

Question 4

empirical distribution

Answer 4

plot probability distribution using historical data

Question 5

average annual return

Answer 5

average of realized returns for each year

Question 6

excess return

Answer 6

difference between average return for investment and average return for treasury bill
measures average risk premium that investors earned

Question 7

common risk

Answer 7

risk that is perfectly correlated
(kärnkraft, vattenförgiftning)
market wide news-affect economy as a whole
systematic

Question 8

independent risk

Answer 8

average of independent risks in portfolio
firm-specific news
do not correlate with anything else

Question 9

efficient portfolio vs inefficient

Answer 9

inefficient portfolio is possible to find portfolio with better expected return and volatility
efficient can not diversify more. can not reduce volatility more without lower expected return

Question 10

market portfolio

Answer 10

portfolio of all stocks and securities traded in the market

Question 11

Beta

Answer 11

systematic risk of security

expected change in return % given 1 % change in market

Question 12

market risk premium

Answer 12

market portfolio expected return-riskfree interest

Question 13

CAPM

Answer 13

capital asset pricing model

cost of capital for investment with beta