Define the following terms, using graphs or equations to illustrate your answers where feasible.

a. Risk in general; stand-alone risk; probability distribution and its relation to risk

b. Expected rate of return, r̂

c. Continuous probability distribution

d. Standard deviation, σ; variance, σ²

e. Risk aversion; realized rate of return, r̅

f. Risk premium for Stock i, RP_i; market risk premium, RP_M

g. Capital Asset Pricing Model (CAPM)

h. Expected return on a portfolio, r̂_p; market portfolio

i. Correlation as a concept; correlation coefficient, r

j. Market risk; diversifiable risk; relevant risk

k. Beta coefficient, b; average stock’s beta

l. Security Market Line (SML); SML equation

m. Slope of SML and its relationship to risk aversion

n. Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH

o. Fama-French three-factor model

p. Behavioral finance; herding; anchoring