Describe how variance and standard deviation are used to measure the variability of individual stocks.
Measure the variability of individual stocks
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· Word count of each substantive participation 100-150 words of each one of the following subjects:
- Describe how variance and standard deviation are used to measure the variability of individual stocks.
- Explain how an investor chooses the best portfolio of stock to hold.
- Discuss how diversification is used to mitigate risk in the portfolio.
- Describe the relationship between risk and expected return (CAPM).
- Explain how the risk-free rate, market risk premium and stock beta are used to calculate expected returns using the capital asset pricing model (CAPM).
- Explain how cyclicality of revenues and operating leverage help determine beta.
- Describe the dividend discount model (DDM) approach and how is it different than CAPM.
- Understand how to calculate the weighted average cost of capital to determine the optimum level of debt and equity to finance an investment.
- What derivatives are and how are they used to manage risk.