Week 4 Flashcards
Market return
Return investors would forgo by investing in proposed project
Specific risk
Risk that potentially can be eliminated by diversification
Market risk
Risk that you can’t avoid
Value additivity
PV(AB)=PV(A)+PV(B)
Efficient portfolios
Highest return for any level of risk
Quadratix programming
Way to solve capital rationing problems
Sharpe ratio
Ratio of risk premium to standard deviation
Market risk premium
Difference between return on market and interest rate
CAMP
Capital Asset Pricing Model
Company cost of capital
Expected return on portfolio of all company’s outstanding debt and equity securities
WACC
Weighted-average cost of capital
R-squared
Measures proportion of total variance in stock’s return that can be explained by market movements
Asset beta
Measures project risk directly
