chapter 8 notes

chapter 8 notes - NCSU BUS 320 Chapter 8 Notes 1 Risk...

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1 NCSU BUS 320 Chapter 8 Notes
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2 Risk Chance that some unfavorable event will occur. Investors like returns and dislike risk. They will invest in risky assets only if they offer A HIGHER EXPECTED RETURN All assets are expected to produce cash flows & riskiness is based on the riskiness of its cash flows.
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3 Stand Alone Risk Risk investor would face if he or she held only one asset. No investment would be undertaken unless the expected return was high enough to compensate for the PERCEIVED RISK . Probability Distributions-list of possible outcomes with chance of occurring attached.
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4 Expected Rate of Return (Single Assets) Weighted average of returns expected for each outcomes. r a = p 1 r 1 + p 2 r 2 +…………. p n r n
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5 Risk of Single Asset The tighter the probability distribution the more likely it is that the actual outcome will be close to expected. (less risk) Measure stand alone risk using standard deviation. The higher the calculated standard deviation the
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This note was uploaded on 04/12/2008 for the course BUS 320 taught by Professor Sloan during the Fall '08 term at N.C. State.

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chapter 8 notes - NCSU BUS 320 Chapter 8 Notes 1 Risk...

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