intro to capital market Flashcards
1
Q
a cash return=
A
is the gain from holding an asset. it has 2 components: income(dividend) and capital gain
2
Q
risk premium=
A
the return on a risky asset
the higher the risk premium the more risky
3
Q
risk premium equation
A
expected rate of return- risk free rate
4
Q
total return equation
A
expected +unexpected return
5
Q
total risk equation
A
systematic+unsystematic risk
6
Q
systematic risk=
A
a risk that influences a large number of assets (market risk)
7
Q
unsystematic risk=
A
a risk that affects a single asset or a small number of assets (unique or asset specific risk)
8
Q
principles of diversification:
A
-spreading an investment across a number of assets will eliminate some but not all risk
unsystematic risk is eliminated by diversification
