4-16-08 (ch10)

4-16-08 (ch10) - risk Market risk – economy wide risk...

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4/16/2008 Notes CH10 Percentage return (%) = (capital gain (loss) + dividend) / initial share price For stock = (P1- P0) / P0 + Div / P0 Nominal vs. real 1+ real rate of return = 1+ nominal rate of return / 1+ inflation rate Expected return = interest on treasury bills + risk premium Variance – average value of squared deviations from the mean - measures volatility Diversification – strategy designed to reduce risk by spreading your investment over (across) many investments Unique risk could be eliminated – risk factors that affect a specific stock (Diversifiable
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Unformatted text preview: risk) Market risk – economy wide risk that affects a entire market (Non diversifiable risk or systematic risks) Portfolio rate of return = (fraction of portfolio in 1 st asset class * rate of return on 1 st asset class) + (fraction of portfolio in 2nd asset class * rate of return on 2nd asset class)-could be more than 2 CH 10 questions for early bird points Due 4-21-08...
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