Ch 02: Assignment - Risk and Return: Part 1 Term Answer Risk A Expected rate of return B Description The rate of return expected to be realized from an investment, calculated as the mean of the probability distribution of its possible returns. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. The possibility that an actual outcome will be better or worse than its expected outcome The general term that describes the portion of an asset's total expected return that is greater than the return earned on the market's risk-free Beta coefficient C. Market risk D. rate. E Correlation coefficient () Stand-alone risk F. Risk premium G The name given to the risk that cannot be diversified away by adding additional assets to an investment portfolio since it results from the systematic events and factors that affect all investments. A measurement of the tendency of two variables to move together. This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient A measure of the sensitivity of a security's returns to fluctuations in the return earned by the market portfolio. The condition of price stability that results from the equality of a security's expected and required returns. The result of adding additional assets to a portfolio, when the returns of the individual assets are non-correlated Diversification H. 1. Capital Asset Pricing Model Equilibrium 3