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

 

 

United Insurance Educators, Inc.

8213 352nd Street East

Eatonville, Washington 98328-8638

(253) 846-1155

 

Email: mail@uiece.com

 

Website: www.uiece.com