Lesson 5 Flashcards
It is a measure of uncertainty surrounding the return that an investment will earn. It is used interchangeably with uncertainty to refer to the variability of returns associated with a given asset.
Risk
Total gain or loss experienced on an investment over a given period.
Total rate of return
Three risk preferences
Risk averse
Risk neutral
Risk seeking
The attitude toward risk in which investors require an increased return as compensation for an increase in risk.
Requires big return as compensation in bigger risk.
Mga “Sigurista”
Risk averse
The attitude toward risk in which investors choose the investment with a higher return regardless of its risk.
They choose to invest in higher returns kahit gaano kalaki ang risk.
Mga “walang paki sa risk”
Risk neutral
The attitude toward risk in which investors prefer investments with greater risk even if they have lower expected returns.
Must prefer nila greater risk kahit mababa yung return.
“Masochist”
Risk seeking
Under risk assessment, an approach for assessing risk that uses several possible alternative outcomes or scenarios to obtain a sense of the variability among returns.
Scenario analysis
Under risk assessment, a measure of an assets risk which is found by subtracting the return associated with the pessimistic or worst outcome from the return associated with the optimistic or best outcome.
Range
A model that relates probabilities to the associated outcomes.
Probability distribution
The chance that a given outcome will occur.
Probability
The chance that a given outcome will occur.
Probability
The simplest type of probability distribution shows only a limited number of outcomes and associated probabilities for a given event.
Bar chart
A probability distribution showing all the possible outcomes and associated probabilities for a given event.
Continuous probability distribution
Under risk measurement, it is the most common statistical indicator of an assets risk; it measures the dispersion around the expected value.
Standard deviation
It is the average return that an investment is expected to produce overtime.
Expected value of a return