COMM 308 Chapter Notes - Chapter 13: Squared Deviations From The Mean, Risk Premium, Standard Deviation

• School: Concordia University
• Department: Commerce
• Course: COMM 308
• Professor: Kaveh Moradi

Document Summary

There is reward for bearing risk we call this reward a risk premium. This risk premium is larger for riskier investments. We now look at the economic and managerial implications of this basic idea. We look at the risks associated with individual assets and we find 2 types of risks: systematic & unsystematic. Now we start looking at how to analyze returns and variances when the information we have concerns future possible returns and their possibilities. Consider a single period of time, one year. We have 2 stocks: l & u, with the following characteristics: Stock l: expected to have a return of 25% in the coming year. Stock u: expected to have a return of 20% for the same period. The answer must depend on the risk of the 2 investments the return on stock l, although expected to be 25%, could actually be lower or higher.