Risk & Return

Table of Contents
Welcome
What is Risk?		1
Probability distribution		2
Nominal returns, real return		2
Reinvestment rate risk		3
What is Risk Tolerance?		3
Time horizon		3
#1. Inflation Risk		6
Protection Against Inflation		7
Diversification		9
Risk reduction		10
Measuring Risks		10
Alpha & Beta		11
Lifecycle Beta		12
Loss Frequency		12
Severity		13
Variation		13
Measuring Risk Further		13
Probability distribution		13
Expected Rate of Return		14
Standard deviation		14
Maximum Possible & Probable Loss		15
Living with Risk & Return		15
#2. Interest Rate Risk		16
Value risk		16
Call risk		17
#3. Business Risk		18
Diversifiable risk		18
#4. Credit Risk		19
#5. Market Risk		20
What is Total Risk?		21
#6. Liquidity Risk		21
#7. Portfolio Risk		22
Covariance		22
Correlation Coefficient		22
Efficient Portfolios		23
Asset Allocation		24
Guidelines for Asset Allocation		25
Expected Return	26
How Much Return is Required	26
CAPM	26
Treating Risk	27
Two Basic Methods	27
Risk Control	27
Risk Financing	28
Risk Control Alternatives	28
Risk Avoidance	28
Combination, Segregation	29
Loss Prevention & Reduction	30
Noninsurance Transfers	31
Risk Financing Alternatives	31
Risk Retention	32
Risk Transfer	33
hedging contract, neutralization	34
hold-harmless agreement	34
Law of Large Numbers	37
law of averages	37
A Large Group of Homogeneous	39
The Loss Produced by Peril Must	39
The Occurrence of the Loss Must	40
The Loss Must be Large Enough	40
Affordable Premium Costs	40
The Chance of loss must be	41
The Peril Must be Unlikely to	41

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