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Define the following terms, using graphs or equations to illustrate your answers where feasible.
Define the following terms, using graphs or equations to illustrate your answers where feasible.
· Risk in general; stand-alone risk; probability distribution and its relation to risk
· Expected rate of return,
· Continuous probability distribution
· Standard deviation, σ; variance, σ2
· Risk aversion; realized rate of return, r
· Risk premium for Stock i, RPi; market risk premium, RPM
· Capital Asset Pricing Model (CAPM)
· Expected return on a portfolio, r^p; market portfolio
· Correlation as a concept; correlation coefficient, ρ
· Market risk; diversifiable risk; relevant risk
· Beta coefficient, b; average stock’s beta
· Security Market Line (SML); SML equation
· Slope of SML and its relationship to risk aversion
· Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH
· Fama-French three-factor model
· Behavioral finance; herding; anchoring
Business School Assignment Instructions
Answer preview Define the following terms, using graphs or equations to illustrate your answers where feasible.
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