Risk and Return

seek and Return Chapter 13 Portfolios ?A portfolio is a collection of assets ? An assets pretend and return is important as it needs the bump and return of the portfolio Diversification ? Portfolio diversification is the investment in several different asset classes or sectors ? Diversification is not just holding a dole out of assets ? For example, if you own 50 internet stocks, you are not modify t di ifi d ? However, if you own 50 stocks that span 20 different industries, and 10 countries, then you are more diversified Types of adventureiness Risk ? ? Systematic Risk Un systematic Risk Systematic Risk ? Risk factors that affects every avocation or every asset ? Also known as non-diversifiable lay on the line or grocery risk ?I l d Includes such things as changes in GDP, h thi h i GDP inflation, interest rates, etc. Unsystematic or Idiosyncratic Risk ? Risk factors that affect a limited number of assets or a precise industry/company ? Also known as crotchety risk and asset-specific risk ?I l d Includes such things as l b strikes, part h thi grasp t ik t shortages, senior management departures, etc.

Diversifiable Risk ? The risk that tummy be eliminated by combining assets into a portfolio ? Often considered the very(prenominal) as unsystematic, unsystematic unique or asset-specific risk Returns decomposition ? Total Return = Risk free return + systematic portion + unsystematic portion  measurement Systematic Risk ? How do we measure systematic risk? y ? We use the beta coefficient to measure y systematic risk ? What does beta tell us? A beta of 1 implies the asset has the same systematic p y risk as the overall market ? A beta < 1 implies the asset has less systematic risk than the overall market ? A beta > 1 implies the asset has more systematic risk than the overall market ? example Beta and the Risk Premium ? Remember that the risk agio = expected return risk-free rate ? The higher the beta the greater the risk... If you want to get a full essay, roam it on our website: Orderessay

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