‚ such as teens are at a higher risk. A lot of teenagers who become pregnant sometimes wish they weren’t . This happens because they either dont want to be parents or they know it’s not the right time. By the time they find out they are pregnant they start stressing out because it was never meant to happen and also because they dont want thier parents to know or to find out. Teenage Pregnancies associate with social issues ‚ such as lower educational levels and higher rates of Poverty. This happens
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Overview The Risk - Return Relationship Another fundamental relationship in the study of finance is the relationship between expected return and the expected level of associated risk. The nature of the relationship is that as the level of expected risk increases‚ the level of expected return also increases. The opposite is true as well. Lower levels of expected risk are associated with lower expected returns. This RISK-RETURN RELATIONSHIP is characterized as being a direct relationship
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context of a portfolio‚ the risk of an asset is divided into two parts: diversifiable risk (unsystematic risk) and market risk (systematic risk). Diversifiable risk arises from company-specific factors and hence can be washed away through diversification. Market risk stems from general market movements and hence cannot be diversified away. For a diversified investor what matters is the market risk and not the diversifiable risk. (4)In general‚ investors are risk-averse. So‚ they want to be compensated
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expected return on a risky asset. c. the expected return on a collection of risky assets. d. the variance of returns for a risky asset. e. the standard deviation of returns for a collection of risky assets. PORTFOLIO WEIGHTS 2. The percentage of a portfolio’s total value invested in a particular asset is called that asset’s: a. portfolio return. b. portfolio weight. c. portfolio risk. d. rate of return. e. investment value. SYSTEMATIC RISK 3. Risk
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of 1.6 and a risk-free asset. How much should you invest in the risk-free asset? a. $0 b. $140 c. $200 d. $320 e. $400 ANALYZING A PORTFOLIO d 59. You have a $1‚000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7. How much needs to be invested in stock B if you want a portfolio beta of .90? a. $0 b. $268 c. $482 d. $543 e. $600 EXPECTED RETURN c 60. You recently
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Why do young people participate in behaviours that put them at risk? Young people may participate in risk taking behaviours for a number of reasons. Peer influence is one factor that may encourage young people to put themselves at risk. This is because if an individual witnesses their peers actively engaging with risky behaviour‚ they may identify the behaviour as positive rather than taking into consideration the consequences. It has been found that young people identify alcohol with positive social
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Risk and Return: Portfolio Theory and Asset Pricing Models Portfolio Theory Capital Asset Pricing Model (CAPM) Efficient frontier Capital Market Line (CML) Security Market Line (SML) Beta calculation Arbitrage pricing theory Fama-French 3-factor model Portfolio Theory • Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.6
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Nondiversifiable and Diversifiable Risk c) Because Diversifiable risk can be eliminated through portfolio diversification‚ the more relevant risk is the Nondiversifiable risk. This kind of risk can be attributed to market forces and factors that affect ALL the firms and cannot be eliminated through portfolio diversification. In this case‚ the nondiversifiable risk is about 6.00%. Notice that the area between the red curve and the green line (which represents the diversifiable risk) diminishes as it approaches
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Risk and Return Assignment Questions 1. Suppose a stock begins the year with a price of $25 per share and ends with a price of $35 per share. During the year it paid a $2 dividend per share. What are its dividend yield‚ its capital gain‚ and its total return for the year? 2. An investor receives the following dollar returns a stock investment of $25: $1.00 of dividends Share price rise of $2.00 Calculate the investor’s total return. 3. Below are the probabilities for the economy’s five
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Risk it Have you ever thought about how often we part by urging each other to be careful? ‘Take care’‚ we say or ‘Look after yourself’. It seems friendly and well meaning and of course‚ we want to see our friends again. However‚ we might actually be doing them a disservice. We are sending them a message that they should not take any risks. That is a similar message to the ones we have probably been receiving ourselves since childhood. While no sensible person would urge us to take risks with fire
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