Before you watch

Look at the topics that will be addressed in the recorded lectures. What can you recall from your assigned reading that is related to these topics? Which of these topics, if any, are completely new to you?

The Relationship Between Risk and Return of Stocks in the Financial Market Influences Investment Choices and Expected Return

Typically, the higher the expected return, the higher the risk involved

Begin By Discussing the Historical Tradeoff Between Risk and Return and Diversification of Stock

Variance and standard deviation are used to calculate risk

Next, Calculate the Expected Return of Portfolios Using Respective Portfolio Weights

Diversifying stocks helps reduce portfolio volatility

Conclude By Applying the Capital Asset Pricing Model and the Concept of Market Beta to Compute the Expected Return For a Stock

Beta measures the degree with which a certain stock moves with or against the market

**Study tip: Print the Lecture Slides and take notes as you watch. Then use your notes to help you answer the Check Yourself questions following the video.

1. A first look at Risk-Return in FIN mkts - revised.pptx

2. The Historic Tradeoff btwn Risk-Return.pptx

3. Diversification in Stock Portfolios.pptx

4. The Expected Return of a Portfolio.pptx

5. Measuring Systematic Risk.pptx

6. CAPM.pptx

Lecture: Risk & Return in Capital Markets

Lecture: Systematic Risk & the Equity Risk Premium

Check Yourself

Check your understanding with these questions/statements:

Based on the direct relationship between risk and expected return, should you invest in treasury bills or small stocks if you want the highest expected return?
What does a high standard deviation say about an investment?
What sort of risk is not diversifiable?
What kind of stocks should be selected to achieve desired expected return for the lowest possible risk?
What do we mean by the term "beta" and what is the most common way to estimate it?
Why would an investor buy stock with an expected return that is lower than the risk free rate?