Term Answer Description Risk A. The potential for variability in the possible outcomes associated with an investment. Expected rate of return The portion of an asset's total expected return required by investors as compensation for assuming the additional risks associated with the security, the issuer, and the marketplace. Beta coefficient That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Market risk The mean of the probability distribution of an investment's possible returns, and the return expected to be realized from owning it. Correlation coefficient (p) A model that calculates the required return on an asset as the sum of the market's risk- free rate and the asset's nondiversifiable risk. Stand-alone risk The result of adding additional assets to a portfolio, when the returns of the individual assets are non-correlated. A measure of the sensitivity of a security's returns to fluctuations in the return earned by the market portfolio. Risk premium o Diversification i The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. Capital Asset Pricing Model I. The condition of price stability that results from the equality of a security's expected and required returns. Equilibrium J. The value of this ranges from +1.0, denoting that two variables move up and down in perfect synchronization to -1.0, denoting that two variables move up and down in exactly opposite directions