Analysis of Risk and Return

Analysis of Risk and Return

• Expected Value: A statistical measure of the mean or average value of possible outcomes.
• Standard Deviation: An absolute measure of risk.
• Coefficient of Variation: A relative measure of risk.
• Systematic Risk: Absolute risk measure, relative to the total risk
• Unsystematic Risk: Risk remaining after extensive diversification.
• Portfolio Risk: The risk of a portfolio consisting of several assets.
• Correlation Coefficient: A measure of the linear relationship between two variables. Values range from +1.0 to -1.0
• Covariance: A measure of the total risk of two equal-sized investments.
• Beta: An estimate of the systematic risk for a specific security, as determined by the slope of the characteristic line.
• Portfolio Diversification: Achieved by investing in a set of securities with different risk-return characteristics
• Security Market Line (SML): Relationship between required rates of return and beta
• Risk-Free Rate: The rate of return for an investment with no risk
• Market Risk Premium: The difference between the expected market return and the risk-free rate
• Beta: The sensitivity of a security's returns to the overall market
• Standard Deviation: Measures the variability of returns around the expected rate. A higher standard deviation indicates greater risk
• Coefficient of variation: A measure of relative risk, calculated as the standard deviation divided by the expected return.
• Risk Premium: The difference between the expected return of an asset and the risk-free rate of return
• Arbitrage Pricing Theory (APT): A model that relates expected returns on securities to a series of risk factors
• Maturity Premium: The additional compensation investors expect to receive for tying up their money for a longer period of time
• Default Risk Premium: Compensation to investors for the possibility that the borrower may default on their loan obligations
• Systematic risk: Market wide events, affects all firms
• Unsystematic Risk: Affecting only a particular firm, diversifiable
• Required Rate of Return For a given level of risk, it represents the expected return that an investor is required to earn to invest in a particular asset.

This quiz covers fundamental concepts related to risk and return in finance. Topics include expected value, standard deviation, systematic and unsystematic risks, and portfolio diversification. Test your knowledge on how these metrics help investors make informed decisions.