risk and return

This set of flashcards covers key vocabulary and concepts from the lecture notes on Risk & Return in Finance from the course FINA 3001.

Discount Rate

The interest rate used to discount future cash flows back to their present value.

Required Return

The minimum return an investor expects to receive from an investment, factoring in its risk.

Risk Premium

The additional return expected for taking on the risk of an investment over the risk-free rate.

Variance

A statistical measurement that describes the degree of variation or dispersion in a set of values.

Standard Deviation

A measure that quantifies the amount of variation or dispersion of a set of data values.

Empirical Distribution

A distribution derived from observed data to estimate expected returns.

Normal Distribution

A probability distribution that is symmetric and characterized by its mean and standard deviation.

Realized Returns

The actual returns generated by an investment over a given period of time.

Average Annual Return

The average of annual returns over a specific period.

95% Prediction Interval

A range within which we can be 95% confident that a future return will lie.