Highlights of Chapter 12 and 13 for final exam, vocabulary and concepts
the excess return required from an investment in a risky asset ofver that required from a risk-free investment
What do we mean by excess return and risk premium?
, Excess return refers to the extra return earned from taking on risk. the risk premium is the return over and above the risk-free rate
What was the real (as opposed to nominal) risk premium on the common stock portfolio?
What was the nominalrisk premium on corporte bonds? The real risk premium?
What is the first lesson from capital market history?
The average squared differnce between the acutal return and the average return is...
The postive square root of the variance is...
A symmetric, bell-shaped frequency distribution that is completly defined by its mean and standard devation is...
In words, how do we calculate a variance?
sum of squared deviations from the mean/ (number of observations-1)
In words how do we calculate a standard deviation?
standard deviation = square root of the variance
With a normal distribution, what is the probability of ending up more than one standard deviation below the average?
Assuming that long-term corporate bonds have an approximatly nomrla distribution, what is the approximate probablity of earning 14.6 percent or more in a given year? with T-bills, rough what is this probability?
What is the second lesson from capital market history?
A market in which security prices reflect available information is
an efficent capital market
Efficent Markets hypothessi (EMH) is...
The hypothesis that actual capital markets such as the NYSE are efficient
What are forms of market efficency?
semistrong from efficiency
strong form efficiency
weak form efficiency
The reurn on a risky asset expecte din the future is called
How do we clculate the expected return on a security?
In words how do we calculate the variance of the expected return?
A risk that invluences a large number of assets, Also, market rixk is called
A risk that affects at most a small number of assets, also unique or assetspecific risk
What are the two basic types of risk?
Systematic risk and Unsystematic risk
What is the distinction between the two types of risk?
The two types of risk are:
Systematic risk principal states that
The expected return on a risky assett depends only on that assets's systematic risk
Beta coefficent is
the amount of systematic risk present in a particular risky asset relative to that in an averager risky asset
What does a beta coefficent measure?
True or false: the expected return on a risky asset depends on taht asset's total risk