Risk Exam 1 Study Guide Topic 1 Module 1 Risk Noun- A situation involving exposure to danger Verb- Expose (something or someone valued) to danger‚ harm‚ or loss Uncertainty Having 2 or more potential outcomes for an event or situation Risk Uncertainty about a future outcome‚ particularly the consequences of a negative outcome Outcomes may vary from the expected Situation of Driving Under the Influence of Alcohol Possible Outcomes (uncertainty): Not caught driving (Expected) Caught (DUI…
Premium Risk Insurance Risk management
MPU 3353 Personal Financial Planning in Malaysia Investment Basics: Understanding Risk and Return 10-1 Introduction Risk is a fundamental component of investing. Risk must be understood and managed. In selecting securities‚ it is important to understand and measure market risk. Then securities can be selected by choosing securities with expected returns that exceed required returns. 10-2 Chapter Objectives To grasp the nature of risk and its sources and to relate risk to investment
Premium Investment Rate of return
3a) A security with only diversifiable risk has expected return that exceeds the risk-free interest rate. This statement is inconsistent with both. Why? Only diversifiable risk implies no undiversifiable (market) risk. Thus‚ this is a zero-beta security‚ which is expected to earn the risk- free rate. If it has higher expected return than the risk-free rate‚ this is not consistent with CAPM. It is above the SML and underpriced‚ In an efficient market‚ savy investors would buy this stock pushing
Premium Financial markets Fundamental analysis
Case 13: Southeastern Specialty‚ Inc. Financial Risk (1‚ 2‚ 3‚ 4‚ & 6) 1. Is the return on the one-year T-bill risk free? No‚ the return on the one-year T-bill is not risk free. Financial risk is related to the probability of earning a return less than expected and the larger the chance of earning a return far below that expected‚ the greater the amount of financial risk. Risk free assumes 100% probability that the investment will earn the total percent of return that is expected. 2. Calculate
Premium Standard deviation Investment Probability theory
‘The concept of risk aversion is fundamental to investment analyses’ – A statement evaluation Risk is almost always present when an investment is taken; the evaluation of risk begins immediately with analysts asking questions about the level of risk associated with an investment‚ performing calculations to measure the risk involved‚ also diversifications may be considered to minimise risk. This clear focus and proactive approach to risk minimisation implies risk aversion plays a major role in
Premium Investment Finance Risk
portfolio weight. c. portfolio risk. d. rate of return. e. investment value. SYSTEMATIC RISK 3. Risk that affects a large number of assets‚ each to a greater or lesser degree‚ is called _____ risk. a. idiosyncratic b. diversifiable c. systematic d. asset-specific e. total UNSYSTEMATIC RISK 4. Risk that affects at most a small number of assets is called _____ risk. a. portfolio b. undiversifiable c. market d. unsystematic e. total
Premium Investment
Week 2 Text Problem Set Candy Wungnema FIN/571 February 5‚ 2013 Kathleen O’Keefe Week 2 Text Problem Set Chapter 5 4. Define the following terms: bond indenture‚ par value‚ principal‚ maturity‚ call provision‚ and sinking fund. • Bond indenture: A contract for a bond defining specified terms for interest and borrowed capital to be repaid to the lender. • Par value: “Specifies the amount of money that must be repaid at the end of the bond’s life‚ which is also called face value
Premium Investment Bond Financial markets
Introduction Economic models are always intended to simplify the real-world complex economic issues and provide efficient information to the users‚ and such role is taken by Capital Asset Pricing Model (CAPM) as well. The CAPM is the key theory in the stock market and industries; it is widely used by analysts‚ investors and corporations. In this essay I am going to discuss the recent developments about the CAPM‚ and refer to both advantages and disadvantages. Capital Asset Pricing Model The
Premium Investment Financial markets Rate of return
Assessed Discussion Question 1. Define what we mean by the firm’s financing decision and the firm’s investment decision. What entities are on the “other side” of these decisions? Financing decision refers to those decisions related to the liabilities and the stockholders equality sides of the firm’s position statement especially concerning decision on to issue bond. Firms’ investment decision refers to those decisions concerned with the asset side of the firm’s balance sheet dealing with
Premium Finance Net present value Investment
Capital Asset Pricing Model (CAPM): Pros and Cons. CAPM defines the relationship between risk and return. The premise of the model is that the expected investment return varies in direct proportion to its risk‚ i.e.‚ the riskier the investment - the higher the return you should expect. Shows: • how much risk you are taking when investing in an instrument? • whether the instrument is rightly priced • whether you are getting sufficient return for the risk you are taking CAPM calculates the
Premium Investment Risk