chance that some unfavorable event will occur

weighted average of the expected returns from the individual assets in the portfolio

can be used as a measure of the amount of absolute risk associated with the outcome

standardized measure of the risk per unit of return

investment consists of different assets

variability of returns of the portfolio as a whole

investing more than one type of asset to reduce risk

relative statistical measure of correlation in the degree and direction of change between two variables.

The greater the variability, the higher the risk

probability that the actual return is less than the expected return

Generally, investors are RISK AVERSE, which means as much as possible investor will try to avoid risk.

Risk and return have DIRECT RELATIONSHIP to each other

Returns are higher for high risk investments as compared to low risk investments and the difference is considered a

Probability and Probability distribution can be used in evaluating investments by computing

Riskiness of an investment can be gauged with the variability of it's returns

pronounced as "sigma"

statistical measure of the variability of a probability distribution around its expected value.

Standard deviation also measures the tightness of a probability distribution

The smaller the SD, the tighter the probability distribution, the smaller the range of returns the lower the risk.

one in which half of the distribution is a mirror image of the other half

one in which half of distribution is not a mirror image of the other half

Standard deviation is an APPROPRIATE RISK MEASURE of variability only if probability distribution is reasonably SYMMETRICAL

standardized measure of the risk per unit of return

Diversification reduces risk by combining assets such as, securities with different risk return characteristics

relative statistical measure of correlation in the degree and direction of change between two variables. It ranges from +1 to -1

+1= same direction, perfectly positive correlated -1= opposite direction, perfectly negative correlated 0= uncorrelated/independent

those are not willing to pay amount as much as the expected value of an uncertain investment.

those that are willing to pay the expected value

those that are willing to pay more than the expected value

selection of efficient portfolios

process of measuring/assessing risk and developing strategies to manage it

Risk management should a. create value b. address uncertainty and assumptions c. integral part of org. process d. dynamic, responsive e. continual improvement f. systematic

Under process of risk management in identification of Potential Risks. It is a breakdown of possible risk sources

accepting loss/ benefit of gain. i.e self insurance

uncertainty about a return caused by natureof business

inability to sell investment quickly in cash

probability that some or all investment will not be returned

investment has declined as a result of inflation

how different values of independent affect dependent

involves using computer based technique available

Type of Probability which only has one single outcome for each action and 100% will occur

Type of Probability which decision maker does not know the probability of occurence and has several event

value assigned to different outcomes from decision

knows the probability of occurence and has several outcomes - most popular method

Risk management is

Which one does not belong to the group

In this step of the Risk Management Process, the potential severity of impact and the probability of the risk’s occurrence is analyzed.

statistical measure of the variability of a probability distribution around its expected value.

The actual amount of compensation demanded is called