Chapter 8 Risk and Return

A photo of a gear, wrench, and nut and bolt set.

Learning Objectives

  1. LO1 Calculate profits and returns on an investment and convert holding period returns to annual returns.

  2. LO2 Define risk and explain how uncertainty relates to risk.

  3. LO3 Appreciate the historical returns of various investment choices.

  4. LO4 Calculate standard deviations and variances with historical data.

  5. LO5 Calculate expected returns and variances with conditional returns and probabilities.

  6. LO6 Interpret the trade-off between risk and return.

  7. LO7 Understand when and why diversification works at minimizing risk and understand the difference between systematic and unsystematic risk.

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