FIN 201 Study Guide - Midterm Guide: Corporate Bond, Standard Deviation, High-Yield Debt
Document Summary
Return- what is earned on an investment: sum of income and capital gains from an investment. Required return- return necessary to induce you to bear risk. Risk- uncertainty that the realized return will not equal the expected return. Diversifiable risk/unsystematic- risk associated with individual asset, declines as more securities are added to the portfolio. Financial risk- how the firm finances its assets. Nondiversifiable risk/systematic- sources not reduced through construction of diversified portfolio. Market risk- risk associated w/ movements in security or stock prices. Interest rate risk- risk associated w/ fluctuations in interest rates. Reinvestment rate risk- risk associated with reinvesting funds generated by an investment. Sovereign risk- investing in debt obligations of a specific country and the government defaulting it. Variability of returns- standard deviation, extent to which return differs from average/expected return. Volatility of returns- beta, index of return on asset, index of systematic risk (stock market)
