COM 240 Chapter Notes - Chapter 13: Risk Premium, Squared Deviations From The Mean, Standard Deviation

• School: University of Victoria
• Department: Commerce
• Course: COM 240
• Professor: Majerbi Basma

Document Summary

Com 240 - chapter 13: return, risk, & the security market line: expected return (e(r)): predicted return on a risky asset in the future. E(r) = (each possible return) x (probability of each return) Expected risk premium: the difference between the expected return on a risky investment & the certain return on a risk-free investment. E(r) premium = e(r) - risk-free rate: total risk measured by the variance or standard deviation of its return. Variance: equal to the squared deviations from the expected return, multiple by their probability, & added together variance = (rj - e(r))2 x pj. Standard deviation: square root of the variance: portfolio: group of assets (such as stocks, bonds, etc. ) held by an investor. Portfolio weights: the % of a portfolio"s total value in a particular asset.