Response to the following problem:
Define the following terms, using graphs or equations to illustrate your answers wherever feasible:
a. Stand-alone risk; risk; probability distribution
b. Expected rate of return, ˆr
c. Continuous probability distribution
d. Standard deviation, σ variance,σ2; coefficient of variation, CV
e. Risk aversion; realized rate of return, r
f. Risk premium for Stock i, RPi ; market risk premium, RPM
g. Capital Asset Pricing Model (CAPM)
h. Expected return on a portfolio, ˆrp; market portfolio
i. Correlation coefficient, ; correlation
j. Market risk; diversifiable risk; relevant risk
k. Beta coefficient, b; average stock's beta, bA
l. Security Market Line (SML); SML equation
m. Slope of SML as a measure of risk aversion.