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Risk
Volatility of an asset's returns over time
Standard Deviation
Measures deviation from the average return
Total Risk
Combination of firm-specific risk and market risk
Coefficient of Variation
Measures risk taken per 1% return achieved
Efficient Frontier
Set of dominating portfolios with highest return for desired risk
Modern Portfolio Theory
Combining securities to minimize risk and maximize returns
Market Risk
Total risk attributed to overall economic factors
Diversification
Reduces firm-specific risk by owning many investments
CAPM
Calculates required return using beta, market return, and risk-free rate
Expected Return
Computed return based on economic states and likelihoods
Required Return
Minimum return an investor expects for an investment
Risk Premium
Excess return expected for taking on additional risk
