Day 121 - -10% Normal 0.50 10% 14% Boom 0.30 14% 30% For...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Day 12: Part 1 Agenda * TA Review Session Today 2:00-3:00 W308 * Friday at 9:00 PM * TA Final Exam Review Session Time? * Final Exam Study Guide * Final Exam Formula Sheet Posted * Final Exam Review Thursday—Email Topics  by Wednesday @ 1:00 * Final Grade Calculations—Ranking on  Thursday * BYU Final Course Evaluation—Due August 9 * Last Reading Quiz: Chapter 13 Due  Thursday at 8:00 AM * * Break 1) How to Measure  Risk      (variance, standard deviation, beta) 2) How to Reduce  Risk     (diversification)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3) How to Price  Risk     (security market line, CAPM) State of      Probability  Return Economy         (P)                 Utility  Hi-Tech Recession        0.20                   4% 
Background image of page 2
Background image of page 3
This is the end of the preview. Sign up to access the rest of the document.

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....
View Full Document

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.

Page1 / 3

Day 121 - -10% Normal 0.50 10% 14% Boom 0.30 14% 30% For...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online