Chapter 11 Cue Cards

Question	Answer
Measuring % Rate of Return	Capital Gain + Dividend / Initial Share Price
Formula for Capital Gain Yield	Capital Gain/Initial Share Price
Formula for Dividend Yield	Dividend / Initial Share Price
What is a Market Index	Measure of the investment performance of the overall market
Rate of return on a security calculation	Rate of Return on T-Bill + Market Risk Premium
Volatility of returns is what is considered as safety T/F	False Considered as RISK
Stocks have highest average rate of return and highest level of volatility T/F	True
What is Unique Risk?	Risk factors affecting only that firm (Also called Diversifiable or non systematic)
Define Market Risk	Economy-Wide sources of risk that affect the overall stock market.
How does Diversification reduce risk?	Assets in the portfolio do not move in exact harmony with each other so if one does bad, another probably does well.
What does reduction in risk of portfolio depend on?	Correlation Coefficient between assets (Value is between +1 and -1)
Define Covariance	Degree to which the returns on two stocks are related
What is portfolio risk	Risk of a portfolio depends on the weights assigned to the assets, individual risks and the correlation coefficients between them

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	Created by dylan_earl over 10 years ago