Risk and Return Flashcards
what does risk averse mean
as risk goes up. return also goes up
what is maturity premium
extra average return from investing in long versus short term securities
RETURN FOR WAITING
what is risk premium
expected return in excess of risk free return as compensation for risk
RETURN FOR WORRYING
how should return be measured
using past to make expectations about the future
how should risk be measured
use historical risk
variance or standard deviation
what are the two components of risk
market risk
unique risk
what is unique risl
risk that is firm specific
risk that is industry specific
what is market risk
risk that effects the economy as a whole
unique risk is also called
diversifiable risk
unsystematic risk
how can unique risk be elimated
diversification
examples of unique risk
poor management
fire in factory
examples of market risk
low GDP growth poor consumer confidence Brexit inflation political risk
what is market risk also know as
non diversifiable
systematic risk
can market risk be eliminated
no
what is diversification
investing in plenty of different industries
reduction in risk wirhour having to reduce the return
not putting all eggs in to one basket
