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ndumas2
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Risk premium
the excess return required from an investment in a risky asset ofver that required from a riskfree 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 riskfree 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...
Variance

The postive square root of the variance is...
Standard Deviation

A symmetric, bellshaped frequency distribution that is completly defined by its mean and standard devation is...
normal distribution

In words, how do we calculate a variance?
sum of squared deviations from the mean/ (number of observations1)

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 longterm corporate bonds have an approximatly nomrla distribution, what is the approximate probablity of earning 14.6 percent or more in a given year? with Tbills, 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
Expected return

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
Systematic risk

A risk that affects at most a small number of assets, also unique or assetspecific risk
unsystematic 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

how do you calculate portfolio beta?

