RISK MEASUREMENTS

Question 1

What is another component of risk for random income assets?

Answer 1

The uncertainty about flows (inability to apprehend the flows for assets with random income)

Question 2

What is the rational investor entitled to when investing into (ordinary) shares?

Answer 2

An additional risk premium

Question 3

What is variance?

Answer 3

A measure of dispersion from the mean

Question 4

What is the covariance?

Answer 4

Measure of the relationship between two variables (the variance between two variables) but it does not assess the dependency between them
=> we can only measure the direction of the relationship
=> measures the variation of two variables from their expected values

Question 5

What is the correlation?

Answer 5

The scaled measure of the covariance (a pure value/no units)
=> it measures the strength of the relationship between two variables