SMG FE 323 Study Guide - Final Guide: Marginal Utility, Adverse Selection, Risk-Free Interest Rate
13 Jun 2018
School
Department
Course
Professor
Document Summary
Standard deviation is a measure of risk. More risk = higher return, riskier project you want higher return. Buying stock, you get dividend and capital gain. Buying bond you get interest and coupons. Treasury bills (benchmark rate) is guaranteed with no risk. Risk premium = risk rate - guaranteed no risk rate. 5 important lessons: required return on an investment depends upon the riskiness of the investment, there is a reward to taking risk and it"s equal to. Non dividend paying investments: average return, geometric or compound annual return. Individual stock risk : every stock has risk, can be categorized as. Systematic : affecting the system underlying the entire market. Unsystematic : unique to single company only, impacts one company. % invested in asset 1 + the % invested in asset 2 etc. to an almost unlimited # of assets.
