a) Explain the unique risk and market risk.
b) Explain the realized rate of return, expected rate of return, and required rate of return.
c) Explain the "risk-averse" concept.
d) Explain the risk premium.
e) What is the diversification strategy? When does it work best?
f) Use the following information.
GM stock produced the following monthly returns (January - May): 5%, 8%, -2%, 12%, and 15%.
Ford stock produced the following monthly returns (January - May): 1%, 10%, 6%, 3%, and 2%.
I) Calculate the average return for each stock.
II) Calculate the standard deviation of the monthly return for each stock.
III) Calculate the correlation between GM and Ford stocks.
Sample Solution