ECON 2560 Study Guide - Final Guide: Issue One, Cameco, Risk Premium
8 Dec 2016
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Document Summary
Risk and return and capital asset pricing model, capm. In practice a broad stock market index, such as the s&p tsx or. S&p 500 composite index, is used to represent the market. The market portfolio is used as a benchmark to measure the risk of individual stocks. Beta sensitivity of a stock"s return to the return on the market portfolio. Beta (denoted ) is a measure of market risk. Measuring beta: beta of stock j = j =( % change in return of stock j / % change in return of the market) Example: turbot charged seafood has the following returns on its stock, relative to the listed changes in the return on the market portfolio. The first three months, every time that the market return was 1% the return for turbot were 0. 8%, 1. 8% and -0. 2% respectively. In the next three months, every month the market return was -1% and the turbot returns were -1. 8%, 0. 2% and -0. 8% respectively.
