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Nominal Risk Free Rate
Monetary reward for postponing consumption (T-Bill Return)
Real Risk Free Rate of Return
Return without chance of default or volatility.
Increase in the cost of goods and services over time.
Required Risk Premium
Necessary compensation for risk taking.
The sum of dividends, interest income, and capital gains or capital losses.
Arithmetic Average Return
Sum of investment returns divided by number of periods or securities.
Geometric Mean Return
Compound rate of return earned on investment.
Gross investment profit expressed as a percentage.
Investment return after inflation.
Common risk measure.
Coefficient of Variation
Relative risk reward measure.
Absolute measure of comovement that varies between plus and minus infinity.
Measure of comovement that varies between -1 and +1.
General fluctuation in stock and bond prices.
Firm Specific Risk
Chance that problems with an individual company will reduce the value of investment.
Chance of loss due to relatively high stock prices.
Reversion to the Mean
Tendency of stock and bond returns to return toward long term averages.
Interest Rate Risk
Chance of loss in the value of fixed income investments following a rise in interest rates.
Chance of loss due to issuer default.
Collection of securities that together provide an investor with an attractive trade off between risk and return.
Concept of making security choices based on portfolio expected returns and risks.
Anticipated profit over some relevant holding period.
Return volatility; usually measured by the standard deviation of returns.
Apportionment of likely occurrences
Characterized by desire to avoid risk.
Zero Risk Portfolio
Constant return portfolio.
Portfolio with maximum expected return for a given level of risk or with minimum risk for a given expected return.
Collection of all efficient portfolios
Collection of securities that provides an investor with the highest level of expected utility.
Short term focus.
House Money Effect
Propensity to take risky gambles after winning some money.
Thinking about money and investing using individual categories instead of a unified perspective.