FINE 2000 Chapter Notes - Chapter 12: Cameco, Risk Premium, Standard Deviation

• School: York University
• Department: Finance
• Course: FINE 2000
• Professor: Greg Chiykowski

Document Summary

Market portfolio portfolio of all assets in the economy. We know the performance of the market reflects only macro events, because firm- specific events or unique risk averages out through the combined performance of thousands of companies/securities. Beta se(cid:374)siti(cid:448)it(cid:455) of sto(cid:272)k"s (cid:396)etu(cid:396)(cid:374) o(cid:374) the (cid:373)a(cid:396)ket po(cid:396)tfolio. In other words, how an individual stock fluctuates with market/macro changes. Recall diversification can reduce unique risk, but not market risk (e. g. decline in the market) Defensive stocks have betas less than one and are not sensitive to market fluctuations. Aggressive stocks have betas more than one and are sensitive to market fluctuations. For an example of measuring beta for turbot, refer to pg. Beta is the slope of the fitted line. We can break down common stock returns into two parts: The pa(cid:396)t e(cid:454)plai(cid:374)ed (cid:271)(cid:455) (cid:373)a(cid:396)ket (cid:396)etu(cid:396)(cid:374)s a(cid:374)d the fi(cid:396)(cid:373)"s (cid:271)eta, a(cid:374)d the pa(cid:396)t that is spe(cid:272)ifi(cid:272) to the firm.