FIN2601 - SU4 - Risk and Return

Define 'Risk'

Give an example of a risk-free asset

Define 'Return'

How is 'return' calculated?

Provide the formula for calculating the rate of return earned on any assets over a period of time

Explain the difference between a realised and unrealised return.

What does CAPM stand for?

Explain the a 'risk-averse' financial manager, which most managers are.

Explain the a 'risk-indifferent' financial manager.

Explain the 'rational investor' type of financial manager

How do we assess risks?

How do we measure risk quantitatively?

Explain scenario analysis

How is an asset's risk measured through the use of 'the range'?

Explain probability distributions

Explain the statistical indicator, Standard Deviation (σr)

Formula included

Explain the expected value of return.

Formula included

Explain Coefficient of variation.

Formula included

Explain the financial manager's goal with regards to creating an efficient portfolio.

Explain the return on a portfolio.

formula included

Explain Standard Deviation of a portfolio's returns.

Formula included

Provide the definition of correlation

Explain positive correlation

Explain negative correlation

Explain Correlation Coefficient.

What is the purpose of Diversification?

Explain Capital Asset Pricing Model (CAPM)

Explain the difference between 'diversifiable risk' and 'non-diversifiable risk'

Explain Beta or Beta Coefficient (b)

The equation for the CAPM is