econ423lec4 - Investing and Uncertainty In many situations...

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ASSET PRICING JUNE 23 rd , 2009 Lauren Heller Econ 423, Financial Markets The Plan for Today Homework Quiz #1 Risk and Uncertainty: A Review Determinants of Asset Demand Supply and Demand in the Bond Market Investing and Uncertainty In many situations, investors must make choices that involve a certain amount of risk . What types of risk have we discussed so far? Risk in Economics and Finance Many people refer to a risk as the probability of loss or injury, but we don’t always have to think of it in that way. Risk can refer to the probability of a loss or a gain. Example Winning the Lottery Risk and Probability To measure risk we must know: All of the possible outcomes of a situation The probability or likelihood that each outcome will occur Probabilities help us to find two separate measures of risky choices: Expected Value Variability
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