chapter 2&amp;3 key term

# chapter 2&amp;3 key term - Omar M. Al Nasser, Ph.D.,...

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1 | P a g e Omar M. Al Nasser, Ph.D., MBA. Visiting Assistant Professor of Finance School of Business Administration University of Houston-Victoria Email: alnassero@uhv.edu Chapter 2 beta coefficient, b A measure of a stock’s market risk, or the extent to which the returns on a given stock move with the stock market. Capital Asset Pricing Model (CAPM) A model based on the proposition that any stock’s required rate of return is equal to the risk-free rate of return plus a risk premium reflecting only the risk remaining after diversification. The CAPM equation is r i = r RF + b i (r M – r RF ). coefficient of variation, CV Equal to the standard deviation divided by the expected return; it is a standardized risk measure that allows comparisons between investments having different expected returns and standard deviations. continuous probability distribution Contains an infinite number of outcomes and is graphed from –• and +•. correlation The tendency of two variables to move together. correlation coefficient, ρ (rho) A standardized measure of how two random variables covary. A correlation coefficient (ρ) of +1.0 means that the two variables move up and down in perfect synchronization, while a coefficient of –1.0 means the variables always move in opposite directions. A correlation coefficient of zero suggests that the two variables are not related to one another; that is, they are independent. diversifiable risk

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## This note was uploaded on 09/21/2011 for the course FINANCE 4320 taught by Professor Omaral-nasser during the Spring '11 term at University of Houston-Victoria.

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chapter 2&amp;3 key term - Omar M. Al Nasser, Ph.D.,...

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