Risk

Coefficient of variation

CV=
= 2 2 + 2 2 + 2
Measure risk per unit of
Expected return(k) return
= =1
Return
= + (1 )

Risk/standard deviation( Risk and Portfolio-

Single asset return combination of
= =1( )2 measurement financial asset
= Return for the ith outcome
= Stocks expected return
= Probability of occurrence of
ith outcome
CHAPTER 3 Returns- total gain/loss experienced from
RISK AND RETURN investment in a given period of time
CAPM
Risk averse = ( ) +
require higher Systematic risk
return from a *Cannot get rid of or be
higher risk eliminated by adding stock or
diversification
*E.g. change in macroeconomics
Risk neutral Risk- Measure of the
factor like inflation and interest
choose higher Risk preferences uncertainty surrounding
Types of risk rates
return regardless of the return that an
risk investment earn

Risk taker Unsystematic risk

chooses higher risk *Can be eliminated through
and may even diversified investment
sacrifice some of
the expected return