Chapter 720-2Risk and Return in the Context of Market EquilibriumFinancial assets vs. real assets:Financial assets:Securities: stocks, bonds, preferred stocks, etc. Contracts: options contracts, forward contracts, futures contracts, etc. Real assets: materials, machines, equipment, properties, etc. These items can be organized into a production line. A production line is also a real asset. If the production line is large, it may be called a division; for example, the Ford Motors has a division to manufacture the Mustangs. A production line is also called a project. A portfolio comprised of single assets is also an asset.Every asset, financial or real or a portfolio, has a market value. The market value changes overtime. The future value of the asset is uncertain; therefore, there is risk. Definition of key symbols:E(R):Expected rate of return of an assetR:Required rate of return of an assetσ2(R):Variance of an assetσ(R):Standard deviation of an assetρ(RA ,RB): Correlation coefficient between two assets A and B β: Market risk index of an assetEx-ante: before the fact; that is, the outcome of the event will occur in the future and is unknown at the present time.