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Unformatted text preview: -10% Normal 0.50 10% 14% Boom 0.30 14% 30% For each firm, the expected return on the stock is just a weighted average of return and corresponding probability: k = P(k 1 )*k 1 + P(k 2 )*k 2 + . ..+ P(k n )*k n = (k i - k) 2 * P i No investment comes with a guarantee. Therefore, you must look at the overall portfolio to minimize the variability of returns. Combining several securities in a portfolio can actually reduce overall risk! Correlation: refers to the way two variables co-move. It is a unitless measure bounded by +1 and -1....
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This note was uploaded on 11/23/2011 for the course BUS M 301 taught by Professor Jimbrau during the Summer '11 term at BYU.
- Summer '11