Mind Map

Mind Map - free of default risk , the rate of return on a...

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* Mind Map Learning Objectives: * Develop an understanding of  risk  for an  individual security  and a  portfolio * Calculate  expected return  and  standard  deviation * Demonstrate an understanding of  diversification  and  correlation * Articulate the difference between  systematic risk  and  total risk * Describe the calculation of  beta * Calculate required return with  CAPM     * Mind Map Key Words/Concepts: * Risk as a two-tailed concept * Standard deviation * Correlation/diversification * Systematic vs. Nonsystematic risk * Beta * Capital Asset Pricing Model (CAPM) * Build-up method   1) How to Measure  Risk 
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    (variance, standard deviation, beta) 2) How to Reduce  Risk     (diversification) 3) How to Price  Risk     (security market line, CAPM) Since Treasury securities are essentially 
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Unformatted text preview: free of default risk , the rate of return on a Treasury security is considered the risk-free rate of return. Question: How large is the risk premium required to buy an individual corporate security? Answer: It depends on the individual corporate security. Required Return: the return that an investor requires on an asset given its particular risk . (i.e. the GREATER the risk, the GREATER the required rate of return and vice versa.) Question: Which do you need to know first, the risk or the required return ? Answer: In order to calculate the required return, you must first understand the RISK !...
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Mind Map - free of default risk , the rate of return on a...

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