# Finance Chapter 12 and 13 HIGHLIGHTS

 Risk premium the excess return required from an investment in a risky asset ofver that required from a risk-free investment What do we mean by excess return and risk premium? , Excess return refers to the extra return earned from taking on risk. the risk premium is the return over and above the risk-free rate What was the real (as opposed to nominal) risk premium on the common stock portfolio? What was the nominalrisk premium on corporte bonds? The real risk premium? What is the first lesson from capital market history? The average squared differnce between the acutal return and the average return is... Variance The postive square root of the variance is... Standard Deviation A symmetric, bell-shaped frequency distribution that is completly defined by its mean and standard devation is... normal distribution In words, how do we calculate a variance? sum of squared deviations from the mean/ (number of observations-1) In words how do we calculate a standard deviation? standard deviation = square root of the variance With a normal distribution, what is the probability of ending up more than one standard deviation below the average? Assuming that long-term corporate bonds have an approximatly nomrla distribution, what is the approximate probablity of earning 14.6 percent or more in a given year? with T-bills, rough what is this probability? What is the second lesson from capital market history? A market in which security prices reflect available information is an efficent capital market Efficent Markets hypothessi (EMH) is... The hypothesis that actual capital markets such as the NYSE are efficient What are forms of market efficency? semistrong from efficiencystrong form efficiencyweak form efficiency The reurn on a risky asset expecte din the future is called Expected return How do we clculate the expected return on a security? In words how do we calculate the variance of the expected return? A risk that invluences a large number of assets, Also, market rixk is called Systematic risk A risk that affects at most a small number of assets, also unique or assetspecific risk unsystematic risk What are the two basic types of risk? Systematic risk and Unsystematic risk What is the distinction between the two types of risk? The two types of risk are: Systematic risk principal states that The expected return on a risky assett depends only on that assets's systematic risk Beta coefficent is the amount of systematic risk present in a particular risky asset relative to that in an averager risky asset What does a beta coefficent measure? True or false: the expected return on a risky asset depends on taht asset's total risk how do you calculate portfolio beta? Authorndumas2 ID120469 Card SetFinance Chapter 12 and 13 HIGHLIGHTS DescriptionHighlights of Chapter 12 and 13 for final exam, vocabulary and concepts Updated2011-12-06T04:22:28Z Show Answers