Introduction to Finance: Markets, Investments, and Financial Management, 15th Edition

CHAPTER 12

Financial Returns and Risk Concepts

Chapter Learning Objectives...

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO DO THE FOLLOWING:

• Know how to compute arithmetic averages, variances, and standard deviations using return data for a single financial asset.
• Understand the sources of risk.
• Know how to compute expected return and expected variance using scenario analysis.
• Know the historical rates of return and risk for different securities.
• Understand the concept of market efficiency and explain the three types of efficient markets.
• Explain how to calculate the expected return on a portfolio of securities.
• Understand how and why the combining of securities into portfolios reduces the overall or portfolio risk.
• Explain the difference between systematic and unsystematic risk.
• Understand the importance of ethics in investment-related positions.

Where We Have Been...

We know investors take their savings and direct it in various ways: some to bank accounts and some to stocks, bonds, or other investment vehicles. Investors direct their savings to various instruments by considering a number of factors: How safe is my money? Am I willing to risk a loss in hopes of achieving ...