Search
Browse
Create
Log in
Sign up
Log in
Sign up
Upgrade to remove ads
Only $2.99/month
Risk definitions
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Key Concepts:
Terms in this set (19)
Risk
A measure of uncertainty about the future pay off to an investment accessed over sometime horizon and relative to a benchmark
Risk definition 2
It can't be quantified arises from uncertainty, have to do with the future play off of an investment, refers to investment or group of investments, must be assessed over sometime, must be measured relative to some benchmark not an isolation
Expected value
The investment return out of a possible value we need to understand this and determine then expected inflation or expected return
Probability theory
States that considering uncertainty requires one listing all the possible outcomes to figuring out the chance of each one account
Probability
The measure of the likelihood that something and event will occur, it is always between zero and one, can also be stated as frequencies
Risk-free asset
And investment who is future value is known with certainty and who is return is the risk free rate of return
Risk free rate of return
The pay off you receive is guaranteed and cannot vary
Standard deviation
Is the positive square root of the variance , The greater the standard deviation the higher the risk
Value at risk VER
The worst possible loss over a specific horizon at a given probability
Leverage
The practice of buying to finance part of an investment
Leverage ratio
Cost of investment divided by owner's contribution to the purchase
Systematic risk's
Threats to the system as a whole not so specific household firm or market
Risk premium
The compensation investors required to hold the risky investment, the risk year and investment the higher the risk premium
Risk averse
A risk averse investor will always prefer an investment with a certain with Karen so one with the same expected return but any amount of uncertainty
Sources of risk
One idiosyncratic or unique risks those affecting a small number of people but no one else sale systematic or economy wide risk those affecting everyone
Idiosyncratic risks has to types
Type one a risk is bad for one sector of the Kanamee but good for another type to unique rest specific to one person or company and no one else
Diversification
The principle of holding more than one risk at a time this reduces the idiosyncratic risk of an investor bear
Hedging
Things are moving in opposite direction, risk should be zero , Aka spreading them among many investments
Diversification
Reduces risk, the principle of holding more than one risk at a time this reduces the idiosyncratic risk an investor bares
YOU MIGHT ALSO LIKE...
Money and Banking Chapter 5 Vocab
18 terms
chapter 11
60 terms
Chapter 11 Finance
28 terms
Risk and Return
13 terms
OTHER SETS BY THIS CREATOR
Final Exam
81 terms
Contracts exam 4
80 terms
Business law exam 3
86 terms
Money and banking review
47 terms
OTHER QUIZLET SETS
IE 326 materials
76 terms
Session 2 - Reading 5 time value of money
24 terms
Unit 1
19 terms
RMI Exam 1
178 terms