RISK AND RETURN Flashcards
1
Q
RATE OF RETURN
A
RETURN ON INVESTMENT / AMOUNT INVESTED
2
Q
RETURN ON INVESTMENT
A
AMOUNT RECEIVED - AMOUNT INVESTED
3
Q
CORRELATION COEFFICIENT (r)
A
MEASURES THE DEGREE TO WHICH ANY TWO VARIABLES ARE RELATED
4
Q
COVARIANCE
A
CORRELATION COEFFICIENT × SD1 × SD2
MEASURE OF THEIR MUTUAL VOLATILITY
5
Q
BETA COEFFICIENT
A
THE EFFECT OF AN INDIVIDUAL SECURITY ON THE VOLATILITY OF A PORTFOLIO IS MEASURED BY ITS SENSITIVITY TO MOVEMENTS BY THE OVERALL MARKET
6
Q
CAPITAL ASSET PRICING MODEL (CAPM) FORMULA
A
REQUIRED RATE OF RETURN = RISK FREE RETURN + BETA(MARKET RETURN - RISK FREE RETURN)
