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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, r

c. Continuous probability distribution

d. Standard deviation, σ; variance, σ2; coefficient of variation, CV

e. Risk aversion; realized rate of return, r

f. Risk premium for Stock i, RPi; market risk premium, RPM

g. Capital Asset Pricing Model (CAPM)

h. Expected return on a portfolio, r

p; market portfolio

i. Correlation as a concept; correlation coefficient, ρ

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

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

b. Expected rate of return, r

c. Continuous probability distribution

d. Standard deviation, σ; variance, σ2; coefficient of variation, CV

e. Risk aversion; realized rate of return, r

f. Risk premium for Stock i, RPi; market risk premium, RPM

g. Capital Asset Pricing Model (CAPM)

h. Expected return on a portfolio, r

p; market portfolio

i. Correlation as a concept; correlation coefficient, ρ

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

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Distribution

The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most... Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...

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