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vv-14 - RRR = Rf Risk Premium CAPM = Rf Beta(Rm-Rf Draw SML...

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Chapter 8 Risk and Return – a little Stats 221 review Return Annualized return = (P1-Po + CF1)/Po * 360/holding period Expected Return = ∑ptRt Risk Total Risk Risk is not just downside – can be upside too. σ 2 = ( Σ(R i R mean ) 2 × p i Market Risk = Systematic risk = Nondiversifiable risk = beta risk How strongly the asset correlates with the market. Draw scatter plot for beta
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Unformatted text preview: RRR = Rf + Risk Premium CAPM = Rf + Beta(Rm-Rf) Draw SML Diversifiable, unsystematic, firm specific, idiosyncratic risk Can be mitigated via diversification. Draw diversification graph Build up Method (Typically for smaller firms and under diversified investors). RRR = bond yield + equity risk premium + micro-cap risk premium + start-up risk premium...
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