## Define the concept of risk and explain how both the probability and magnitude of outcomes impact the degree of risk.

Chapter 7 -Risk Analysis

Dr. Kevin Bracker; Dr. Fang Lin; and Jennifer Pursley

### Learning Objectives

After completing this chapter, students should be able to

Define the concept of risk and explain how both the probability and magnitude of outcomes impact the degree of risk.

Identify sources of risk and differentiate between general economic risk factors and

firm-specific risk factors.

Explain the concepts of probability distributions, expected return, and standard

deviation for a single security.

Calculate and interpret the expected return and standard deviation of a single

security given a probability distribution.

Explain the concept of correlation.

Explain the concept of expected return and standard deviation for portfolios.

Calculate and interpret the expected return and standard deviation for two-stock

portfolios.

Explain/diagram the concept and implications of portfolio diversification.

Differentiate between firm-specific (diversifiable) risk, market (non-diversifiable) risk,

and total risk.

Identify when each risk type of risk measurement is appropriate.

Calculate and interpret beta.

Explain, calculate, and interpret the Capital Asset Pricing Model and Security Market

Line.

Identify potential concerns regarding the viability of the Capital Asset Pricing Model

and the Security Market Line

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APA

300 words