Business Finance
FIN 307 Grantham University Week 3 Continuous Probability Distribution PPT

Grantham University

Question Description

I’m studying for my Business class and need an explanation.

Principles of Finance – Week 3 Assignment

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, see example below.

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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Final Answer

Please find the attached. Let me know if you need any clarification.

Running head: FIN307 GRANTHAM WEEK 3

FIN307 Grantham Week 3
Student Name
Institutional Affiliation

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FIN307 GRANTHAM WEEK 3

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FIN307 Grantham Week 3

Risk, in general, is the possibility of loss to occur. It is as a result of the uncertainty of events
with a chance of affecting the expected return negatively. It is uncontrolled, unprecedented as
well as the unpredicted outcome. Besides, it is the variability of expected results (Sraders, 2019).
An unfavorable event also can happen.
Stand-Alone Risk is a category of risk which is caused by a specific asset within a corporation.
Such a risk cannot be diversified. It is determined by the following formula.
Stand-alone risk = Business Risk + Financial Risk.
Figure 1: Assessment of Stand-alone risk

Probability distribution indicate the chances that a loss will occur to a particular investment
portfolio. It is found based on historical returns.

FIN307 GRANTHAM WEEK 3

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Figure 2: Probability Distribution

The expected rate of return is the summation of possible gains from a given investment portfolio.
It also means the investor expectation from his investment at a future date. It is found based on
the probability of profits of a given collection (Bragg, 2020).
E (Ri) = Rf+ β (Rm - Rf)
Figure 3: Expected rate of return

FIN307 GRANTHAM WEEK 3

Figure 4: CAPM Graphical Representation

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Continuous probability distribution
It is the proportion distribution of random variable X.
Figure 5: Continuous probability distribution

Stdev, σ; variance
The δ is a metric for determining the spread or scale of data. It shows the dispersion of the
dataset concerning the mean. In high standard deviation is indicated by values that are far away
from the mean.
Figure 6: Stdev, σ

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δ2, is the square of Stdev, σ (Statcan, 2017).

Risk aversion is the act of reducing the uncertainty of risk. It is the negative attitude towards risk
(Hall, 2018).
The realized rate of return is the realizable return that is earned during a holding period (Kennan,
2018).

FIN307 GRANTHAM WEEK 3

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The risk premium for Stock is the difference between the risk-free rate of return and the expected
return.
Market risk premium is the difference between the risk-free rate of return and the expected return
from the market. It is indicated by the security market (SML).
Figure 7: Market risk premium/SML

(CAPM)
(CAPM) provides the relationship that exists between the systematic risks of a given portfolio
and its expected return.
Figure 8: (CAPM) Formula

FIN307 GRANTHAM WEEK 3

The expected return on a portfolio is the expected return of a collection based on the weighted
average. It shows the likelihood of losing some portion of a given return from an investment
(Reed, 2020).
The market portfolio is a collection of investment instru...

nasir0040 (16046)
UT Austin

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