Questions:
Risks and Return
Consider the following as you read:
1. Understand how capital gains and percentage returns are calculated.
2. Explain the difference between average stock returns and risk-free returns.
3. Explain how the Sharpe Ratio is used to manage risk.
4. Describe the significance of US equity risk premiums as a method of comparison with other countries
Return and Risk - Capital Asset Pricing Model
Consider the following as you read:
1. Describe how variance and standard deviation are used to measure the variability of individual stocks.
2. Explain how an investor chooses the best portfolio of stock to hold.
3. Discuss how diversification is used to mitigate risk in the portfolio.
4. Describe the relationship between risk and expected return (CAPM).