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Canada (161,369)
Commerce (1,683)


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Kevin Brewer

Commerce 2FA3 Chapter 13: Return, Risk, and Security Market Line Expected Returns and Variances Expected Return - Return on a risky asset expected in the future Risk premium= Expected Return – Risk free rate E(R)= Sum [OXP] O- The value of the outcome P- The probability of occurrence Portfolios - Group of assets such as stocks and bonds held by an investor Portfolio Weights - Percentage of a portfolio’s total value in a particular asset PW= Asset price/total worth Portfolio Expected Returns ER= PWX E(Rl) How much you expect your money to earn Announcements, surprises, and expected returns Expected and unexpected returns Total return= Expected return + Unexpected return R= E(R) + U Announcement= Expected part + Surprise Risk: Systematic and unsystematic Systematic and Unsystematic Risk Systematic risk: A risk that influences a large number of assets. Also called market risk Unsystematic risk: A risk that affects at most a small number of assets. Also called unique or asset specific risks Actual return= E(R) + U U Systematic portion + unsystematic portion m-systematic E-unsystematic Diversification and Portfolio Risk Principle of diversification: Principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk Diversification and Unsystematic Risk - Unsystematic risk is essentially eliminated by diversification, so a relatively large portfolio has almost no unsystematic risk Diversification and Systematic Risk - Non diversifiable - Total risk= Systematic risk + Unsystematic Risk Systematic Risk and Beta Systematic risk principle: Princi
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