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Chapter 11 - Risk and Diversification
Terms in this set (13)
a combined holding of at least two assets.
the inability to forecast which outcomes or states of nature will occur in the future.
the variation in value among uncertain outcomes.
unwilling to accept risk without the expectation of reward.
in finance, a variable whose value in the future is unknown.
a probability distribution with a symmetrical or bell-like curve.
Mean or Expected Value
the average of all possibly values weighted by their probabilities of occurrence.
Standard Deviation and Variance
statistical measures of dispersion and variability.
the reduction in a portfolio's risk that occurs when assets are combined into a portfolio and portions of the risks of the portfolio's constituent assets cancel each other out.
a statistical measure of the extent to which two variables move together.
a statistical measure of the extent to which two variables move together. The correlation coefficient ranges from +1, or perfect positive correlation, to -1 or perfect negative correlation.
the risk that can be removed through diversification.
the risk remaining even after assets are combined in a well-diversified portfolio. Also known as systematic risk or market risk.
THIS SET IS OFTEN IN FOLDERS WITH...
Chapter 7 - Capital Budgeting
Chapter 19 - International Finance
Chapter 4 - Time Value of Money
Chapter 5 - The Valuation of Financial Securities
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