risk - Risk and Returns: part 1 Economics 71a: Spring 2007...

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Risk and Returns: part 1 Economics 71a: Spring 2007 Mayo chapter 8 Malkiel, Chap 9-10 Lecture notes 3.2a
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Goals Return reminder What is risk? Types of risk Statistics background Risk return tradeoff
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Returns Total percentage gain on investment Includes dividends for stocks Example Price : 100 - 105 Pays: $2 dividend Return = (105+2-100)/100 = 7%
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What is Risk? Hard question No good answer Statistical Features Variance/Standard deviation Histograms (probability distributions)
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Types of Risk Market Default (financial risk) Business Interest rate Liquidity Tax Event Political
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Statistics Random variables and histograms Expected returns Variances Covariance Correlation
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Histogram Frequency with which random variable takes value Gives a pictorial indication of risk Many possible shapes Most famous is the Normal Distribution
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Random Variables and Histograms
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Return Histogram
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This document was uploaded on 11/04/2011 for the course FIN 412 at North South University.

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risk - Risk and Returns: part 1 Economics 71a: Spring 2007...

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