FINA 469 Lecture Notes - Lecture 4: Real Interest Rate, Risk-Free Interest Rate, Kurtosis

• School: USC, SC, Carolina, South Carolina
• Department: Finance
• Course: FINA 469
• Professor: Gregory Putnam

Document Summary

Properties: normally distributed variable is completely described by its mean and standard deviation, if we can assume 1 then standard deviation is our risk metric, for a portfolio of normally distributed stock returns, the portfolio returns are. 2. 2. 17 page 1: for a portfolio of normally distributed stock returns, the portfolio returns are also normally distributed. 2/3 of returns will fall within 1 standard deviation of mean/expected return. 95% of returns will fall within 2 standard deviations. Extreme values clustered to one side of distribution. If expected portfolio return is 10% and rf = 2%, risk premium = 8: excess return, how much x portfolio return vs rf, using historical data. Trading, investing, speculating: risk premium, expert on excess return. Used in mean variance analysis and ranking portfolios by sharpe ratio. Higher the ratio, the more excess return per unit of risk. Portfolio x has e(rx) of 12%, rf of 2%, x of 15%