AFM273 Chapter Notes - Chapter 10: Confidence Interval
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Chapter 10
Variance (R): ΣR PR * (R – E[R])2
Standard Deviation: (Var(R))1/2
Variance (R): 1/(T-1) * Σ (R – Ravg)2
Standard Error: SD/(# of observations)1/2 = volatility/(# of returns)1/2
95% Confidence Interval: Avg Return +/- 2(Standard Error)
Beta: The expected percent change in the excess return of a security for a 1%
change in the excess return of the market portfolio.
Market Risk Premium = E[RMk t ] - rf
E[ri] = Risk-Free Rate + Risk Premium = r f + Bi * (E[RM k t ] – rf)
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