CHAPTER 2. Risk and Return. Topics in Chapter 2. Basic return measurement Types of Risk addressed in Ch 2: Stand-alone (total) risk Portfolio (market) risk (Later, in Chapters 10 & 13, we consider within-firm risk) Relationship between risk and return: CAPM/SML. Investment Returns.
Risk and Return
Company Specific (Diversifiable) Risk
Stand-Alone Risk, p
10 20 30 40 2,000 stocksRisk vs. Number of Stock in Portfolio
beta > 1.0 high risk
beta = 1.0 average risk
beta < 1.0 low risk