Day 121

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

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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)

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3) How to Price  Risk     (security market line, CAPM) State of      Probability  Return Economy         (P)                 Utility  Hi-Tech Recession        0.20                   4%
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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.

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

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