Chapter 4 Risk and Rates of Return . © 2005 Thomson/South-Western. Defining and Measuring Risk. Risk is the chance that an unexpected outcome will occur A probability distribution is a listing of all possible outcomes with a probability assigned to each; must sum to 1.0 (100%).
© 2005 Thomson/South-Western
AN EFFICIENT PORTFOLIO: “Maximizes return
for a given level of risk or minimizes risk for a
given level of return”.
.. of thinking how risky a security is if helf in isolation – you need to measure its market risk … measure how sensitive it is to market … this sensitivityis called BETA