ECON 2560 Lecture Notes - Lecture 10: Market Risk, United States Treasury Security, Squared Deviations From The Mean
26 Oct 2015
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Document Summary
Total return on investment is made up of: Percentage return = capital gain + dividend / initial share price. 11. 2 eighty five years of capital market history. Market index = measure of investment performance of overall market. Rate of return on any security = rate of return on t-bills + market risk premium. Variance - average value of squared deviations from the mean. Treasury bills have lowest average rate of return, and lowest level of volatility. Stocks have highest average rate of return and highest level of volatility. Diversification: strategy that reduces risk by spreading portfolio across many investments. Possible as assets possess two kinds of risks: Unique risk- affect only that firm (aka diversifiable or non-systematic risk) Market risk - economy-wide (aka systematic or non-diversifiable risk) Total risk = unique risk + market risk. Correlation coefficient is standardized measure of co-movement of assets and. Introduction to risk, return and the opportunity cost of.
