Week 3 PowerPoint Presentation

Prepare a PowerPoint or Prezi Presentation to define the following terms, using graphs or equations to illustrate your answers where feasible.

· Risk in general; stand-alone risk; probability distribution and its relation to risk

· Expected rate of return, ^r

· Continuous probability distribution

· Standard deviation, σ; variance, σ2

· Risk aversion; realized rate of return, r

· Risk premium for Stock i, RPi; market risk premium, RPM

· Capital Asset Pricing Model (CAPM)

· Expected return on a portfolio, r^p; market portfolio

· Correlation as a concept; correlation coefficient, ρ

· Market risk; diversifiable risk; relevant risk

· Beta coefficient, b; average stock’s beta

· Security Market Line (SML); SML equation

· Slope of SML and its relationship to risk aversion

· Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH

· Fama-French three-factor model

· Behavioral finance; herding; anchoring

Business School Assignment Instructions

The requirements below must be met for your paper to be accepted and graded:

Write between 750 – 1,250 words (approximately 3 – 5 pages) using Microsoft Word in APA style.

Use font size 12 and 1” margins.

Include cover page and reference page.

At least 80% of your paper must be original content/writing.

No more than 20% of your content/information may come from references.

Use at least three references from outside the course material; one reference must be from EBSCOhost. Text book, lectures, and other materials in the course may be used, but are not counted toward the three reference requirement.

Cite all reference material (data, dates, graphs, quotes, paraphrased words, values, etc.) in the paper and list on a reference page in APA style.

References must come from sources such as scholarly journals found in EBSCOhost or on Google Scholar, government websites and publications, reputable news media (e.g. CNN , The Wall Street Journal, The New York Times) websites and publications, etc. Sources such as Wikis, Yahoo Answers, eHow, blogs, etc. are not acceptable for academic writing.

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1 Student paper 3 Student paper 5 assignmentpoint

Financial Statements and Ratio Analysis

Latasha Felder

Grantham University

Debra Touhey

Principles Of Finance

March 1, 2022

Risk in general; stand-alone risk; probability distribution and its relation to risk

In general, risk is the chance that something bad will happen and cause you to lose money, damage, or be sued. This can happen because of flaws in the outside world or inside your own body (Calvet et al., 2022). Risk that is unique to a single business or asset is called "standalone risk." Management of a stand-alone risk is done by freezing the entity that is linked to the risk. Probability distribution is a model used in statistics to show how likely it is that an event will happen (Yampuler, 2019). Expected rate of return, ^r

Expected return is the expected profit or loss that will come from an investment. By figuring out the probability distribution average of all the possible returns,

you can figure out the expected rate of return.

https://grantham-saas.blackboard.com/webapps/mdb-sa-BB5e4317e89b7ad/originalityReport?attemptId=45ffa617-9cc0-4dac-b037-8a42e8bcdd29&course_id=_22561_1&download=true&includeDeleted=true&print=true&force=true

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Efalken.(n.d) http://www.efalken.com/papers/RRsec1.html

In finance risk is the possibility that the return of investment will be at a lower figure than the expected return. Probability distribution can be used to predict the

future outcomes of an event based on the historical figures and records of an organization hence assisting in predicting the future risks that are likely to occur for a particular entity. Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not.

Continuous probability distribution

When a random variable takes all possible values and real numbers within a specified range, this is referred to as a continuous probability distribution. In this

distribution, the random variable is believed to be continuous in nature, as opposed to discrete (Yampuler, 2019). Standard deviation, σ; variance, σ2

The square root of the discrepancy between the data points and the mean is used to calculate variance (2). The standard deviation of a data set is a measure of

how far it is from the average or mean of the data set (Robertson, 2020). Risk aversion; realized rate of return, r

When an investor has two options for investments with the same projected return but differing levels of risk, he chooses the lower-risk choice..

Variance is calculated by determining the weighted probability average obtained by squaring deviations derived from the expected value. Standard devia-

tion is used in finance to measure the volatility of the investment by determining the total annual rate of investment. 3

Risk premium for Stock i, RPi; market risk premium, RPM

The market risk premium is the extra amount of return that investors are supposed to get from investing in the stock market instead of risk-free products. Investing in stocks comes with a price tag that's higher than a risk-free rate of return because of the inherent risk that comes along with it (Yampuler, 2019). Capital Asset

Pricing Model (CAPM) This is a stock market model that describes the relationship existing between expected return and systematic risk. Expected return on a

portfolio, r^p; market portfolio

To calculate the expected return on a portfolio, you add together the expected returns from each of the securities and assets included in the portfolio, and then multi- ply that total by the percentage of the portfolio they represent (Calvet et al., 2022).

Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation. Market risk

premium is dependent on the level of risk aversion that investors possess on average. CAPM is used to determine the price of securities that are risky and also

generation of expected returns for stocks and assets as well as computing the capital costs. Market portfolio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.

Correlation as a concept; correlation coefficient, ρ

The term "correlation" refers to a statistical measure that depicts the relationship between two or more securities. The correlation coefficient is a number that ranges from -1 to 1, indicating whether there is a negative or positive correlation between two or more stocks (Robertson, 2020). Market risk; diversifiable risk; relevant risk

The possibility that an investor would suffer losses as a result of factors affecting the performance of the financial markets in which he or she has invested is

known as market risk. The fluctuation in returns that results from the macroeconomic factors affecting the hazardous assets is referred to as "relative risk.“

Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing

market share

Beta coefficient, b; average stock’s beta

Beta is a number that tells you how much risk there is in a security or a group of securities when compared to the whole market.

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Average stock's beta shows how volatile the security is compared to the market (Robertson, 2020). Beta coefficient, b; average stock’s beta

Beta is a number that tells you how much risk there is in a security or a group of securities when compared to the whole market. Average stock's beta shows

how volatile the security is compared to the market.

Beta indicates whether volatility of return of a security will be higher or lower as compared to the market return volatility. 6

Security Market Line (SML); SML equation

When the SML equation is used, it tells how much risk a security has in the market and how much the security needs to earn to make money. Security Market

Line (SML) is a graph that shows the risk of the whole market against its return over a certain amount of time. It also shows which securities in the market are risky (Yampuler, 2019). Slope of SML and its relationship to risk aversion

The slope of SML is the same as the market risk. Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH

When the expected return on a security is equal to the necessary return, we say that we are in equilibrium (Calvet et al., 2022). According to the Efficient Market Hypothesis (EMH), stocks are always in a condition of equilibrium and outsider investors have a tough time taking control of the market. Forms of EMH

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Source Matches (39)

Student paper 100%

Student paper 76%

Student paper 85%

Weak form

Semi-strong form

Strong form.

The security market line is less volatile when the average better is less than 1 and more volatile when the average is more than 1. Security Market Line (SML) is a

graph that shows the systematic risks against the whole market return in a given period of time as well as indicating all securities that are risky in the market. The slope shows how the investors are risk averse on average. SML slope that is steep indicates that the investor is less risk averse and demands a higher return. 7

Fama-French three-factor model

If you want to figure out how much you should charge for something, you can use the Fama-French three-factor model to do it, which adds size and value factors to the CAPM (Robertson, 2020). Behavioral finance; herding; anchoring

Behavioral finance is a branch of finance that explains why people make decisions about money that aren't logical. People in the market react to information about how other market agents are behaving. This is called herding (Yampuler, 2019). An example of anchoring is when people think about a target value and keep thinking about it. This is a cognitive error that behavioral finance says is caused by the way people think..

The weak form indicate that information about the past price movement is reflected in the current market prices. Semi-strong form indicate that current

market prices reflects all information available in the public. The Strong form: implies that current market prices are as a reflection of all publicly and privately

held information

REFERENCES

Calvet, L., Gianfrate, G., & Uppal, R. (2022). The finance of climate change. Journal of Corporate Finance, 102162. https://doi.org/10.1016/j.jcorpfin.2022.102162

Robertson, I. (2020). Principles of sustainable finance. Journal of Sustainable Finance & Investment, 10(3), 311-313.

https://doi.org/10.1080/20430795.2020.1717241

Yampuler, M. (2019). Principles-Based Accounting Standards, Earnings Management and Price Efficiency. Accounting and Finance Research, 8(2), 171.

https://doi.org/10.5430/afr.v8n2p171

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Student paper

Principles Of Finance

Original source

Principles of Finance

Student paper

Risk in general; stand-alone risk; probability distribution and its relation to risk

Original source

Risk in general stand-alone risk probability distribution and its relation to risk

Student paper

Expected rate of return, ^r

Original source

Expected rate of return, ^r

Student paper

Expected return is the expected profit or loss that will come from an investment.

Original source

Expected return is the anticipated profit or loss that result from an investment

Student paper

Efalken.(n.d) http://www.efalken.com/papers/RRsec1.html In finance risk is the possibility that the return of investment will be at a lower figure than the expected return.

Original source

http://www.efalken.com/papers/RRsec1.html In finance risk possibility that the return of in- vestment will be at a lower figure than the expected return (LumenLearning, n.d.)

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Student paper 96%

Student paper 89%

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Student paper 93%

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Probability distribution can be used to predict the future outcomes of an event based on the historical figures and records of an organization hence assisting in predicting the future risks that are likely to occur for a particular entity.

Original source

Student paper

Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not.

Original source

Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not (LumenLearning, n.d.)

Student paper

Continuous probability distribution When a random variable takes all possible values and real numbers within a specified range, this is referred to as a continuous probability distribution.

Original source

Continuous probability distribution Continuous probability distribution is a distribution where the random variable takes all values and real numbers at a given range

Student paper

In this distribution, the random variable is believed to be continuous in nature, as opposed to discrete (Yampuler, 2019).

Original source

The random variable in this distribution is considered to be continuous in nature

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Standard deviation, σ;

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Standard deviation, σ

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The standard deviation of a data set is a measure of how far it is from the average or mean of the data set (Robertson, 2020).

Original source

Standard deviation is a measure of the distribution of a data set from it average or mean

Student paper

realized rate of return, r

Original source

realized rate of return, r

Student paper

Variance is calculated by determining the weighted probability average obtained by squar- ing deviations derived from the expected value.

Original source

Variance is calculated by determining the weighted probability average obtained by squar- ing deviations derived from the expected value (LumenLearning, n.d.)

Student paper

Standard deviation is used in finance to measure the volatility of the investment by deter- mining the total annual rate of investment.

Original source

Standard deviation is used in finance to measure the volatility of the investment by deter- mining the total annual rate of investment (Brigham, E

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Student paper 92%

Student paper 76%

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Student paper 92%

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Risk premium for Stock i, RPi; market risk premium, RPM The market risk premium is the ex- tra amount of return that investors are supposed to get from investing in the stock market instead of risk-free products.

Original source

Risk premium for Stock i, RPi market risk premium, RPM The market risk premium is the ex- tra amount of return of investments that investors are supposed to invest in stock market instead of buying securities that are risk-free

Student paper

Capital Asset Pricing Model (CAPM) This is a stock market model that describes the relation- ship existing between expected return and systematic risk.

Original source

Capital Asset Pricing Model A model that describes the relationship between expected re- turn and risk of a security

Student paper

Expected return on a portfolio, r^p;

Original source

Expected return on a portfolio, r^p

Student paper

Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation. Market risk premium is dependent on the level of risk aversion that investors possess on average.

Original source

Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation It is dependent on the level of risk aversion that investors possess on average

Student paper

CAPM is used to determine the price of securities that are risky and also generation of ex- pected returns for stocks and assets as well as computing the capital costs. Market portfolio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.

Original source

It is used to determine the price of securities that are risky and also generation of expected returns for stocks and assets as well as computing the capital costs Brigham, E Market port- folio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.(Market Portfolio

Student paper

Correlation as a concept; correlation coefficient, ρ

Original source

Correlation as a concept correlation coefficient, ρ

Student paper

The possibility that an investor would suffer losses as a result of factors affecting the perfor- mance of the financial markets in which he or she has invested is known as market risk. The fluctuation in returns that results from the macroeconomic factors affecting the hazardous assets is referred to as "relative risk.“

Original source

Market risk is the likelihood that an investor will experience losses caused by factors that affect the performance of the financial markets he or she has invested in Relative risk is the variation of returns that result from the macroeconomic factors affecting the risky assets

Student paper

Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing market share

Original source

Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing market share (Diversifiable risk

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Beta coefficient, b; average stock’s beta

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Beta coefficient, b average stock’s beta

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Beta coefficient, b; average stock’s beta

Original source

Beta coefficient, b average stock’s beta

Student paper

Average stock's beta shows how volatile the security is compared to the market. Beta indi- cates whether volatility of return of a security will be higher or lower as compared to the market return volatility.

Original source

Average stock’s beta indicates the volatility of security compared to the market Beta indi- cates whether volatility of return of a security will be higher or lower as compared to the market return volatility

Student paper

Security Market Line (SML);

Original source

Security Market Line (SML)

Student paper

Security Market Line (SML) is a graph that shows the risk of the whole market against its re- turn over a certain amount of time.

Original source

Security Market Line (SML) is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities

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Slope of SML and its relationship to risk aversion The slope of SML is the same as the mar- ket risk.

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Slope of SML and its relationship to risk aversion The slope of SML is equivalent to the mar- ket risk

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Efficient Markets Hypothesis (EMH); three forms of EMH

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Efficient Markets Hypothesis (EMH) three forms of EMH

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Forms of EMH

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Forms of EMH

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Semi-strong form

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Semi-strong form

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Student paper 99%

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wikipedia 65%

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sciedupress 66%

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The security market line is less volatile when the average better is less than 1 and more volatile when the average is more than 1. Security Market Line (SML) is a graph that shows the systematic risks against the whole market return in a given period of time as well as indi- cating all securities that are risky in the market. The slope shows how the investors are risk averse on average. SML slope that is steep indicates that the investor is less risk averse and demands a higher return.

Original source

The security is less volatile when the average better is less than 1 and more volatile when the average is more than 1 Security Market Line (SML) is a graph that shows the systematic risks against the whole market return in a given period of time as well as indicating all secu- rities that are risky in the market The slope shows how the investors are risk averse on aver- age SML slope that is steep indicates that the investor is less risk averse and demands a higher return

Student paper

Fama-French three-factor model

Original source

Fama-French three-factor model

Student paper

The weak form indicate that information about the past price movement is reflected in the current market prices.

Original source

indicate that information about the past price movement is reflected in the current market prices

Student paper

Semi-strong form indicate that current market prices reflects all information available in the public.

Original source

indicate that current market prices reflects all information available in the public

Student paper

The Strong form: implies that current market prices are as a reflection of all publicly and pri- vately held information

Original source

Semi-strong form implies that current market prices are as a reflection of all publicly and privately held information

Student paper

Journal of Corporate Finance, 102162.

Original source

Journal of Finance

Student paper

Principles of sustainable finance.

Original source

Principles of Finance

Student paper

https://doi.org/10.5430/afr.v8n2p171

Original source

https://doi.org/10.5430/afr.v8n1p66 Refbacks There are currently no refbacks

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