Risk and Return, beta, CAPM Flashcards
1
Q
How do we measure return for a stock?
A
holding period of return
- > buy a stock at price Po and hold it for one period
- > worth p1 and receive D1
- Where P1-P0/PO = capital gain yield
- D1/Po = dividend yield
2
Q
measure risk of a stock?
A
volatility
3
Q
calculate portfolio risk
A
use the formula
4
Q
diversification
A
good, lower volatility
5
Q
beta
A
systematic risk
b=1, perfect correlation
b=0, no market risk
change in stock / change in market = b
6
Q
CAPM
A
E(Rstock)=Rf + Bstock * (E(Rm)-Rf)
-> relates the stocks expected return to the risk free rate and expected market return through beta
7
Q
RHO
A
- correlation
8
Q
long
A
- have a share and selling it
9
Q
short
A
- dont have it and have a negative amount of it
- borrow and sell at a higher price, and buy it back at a lower price
10
Q
calculate beta for a portfolio
A
- linear
WxBx + WyBy + WzBz
