COMMERCE 2FA3 Chapter Notes -Relative Risk, Linear Combination, Capital Market

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 2FA3
• Professor: Kevin Brewer

Document Summary

Chapter 13: return, risk, and security market line. Return on a risky asset expected in the future. Risk premium= expected return risk free rate. Group of assets such as stocks and bonds held by an investor. Percentage of a portfolio"s total value in a particular asset. Er= pwx e(rl) how much you expect your money to earn. Systematic risk: a risk that influences a large number of assets. Unsystematic risk: a risk that affects at most a small number of assets. Principle of diversification: principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk. Unsystematic risk is essentially eliminated by diversification, so a relatively large portfolio has almost no unsystematic risk. Total risk= systematic risk + unsystematic risk. Systematic risk principle: principle stating that the expected return on a risky asset depends only on that asset"s systematic risk.