KEY TERMS Define each of the following terms using graphs or equations to illustrate your answers whenever feasible:

a. Risk; stand-alone risk; probability distribution

b. Expected rate of return, r

c. Standard deviation, ; coefficient of variation (CV)

d. Risk aversion; risk premium (RP); realized rate of return, r

e. Risk premium for Stock i, RPi; market risk premium, RPM

f. Expected return on a portfolio, rp; market portfolio g. Correlation; correlation coefficient, h. Market risk; diversifiable risk; relevant risk i. Capital Asset Pricing Model (CAPM)

j. Beta coefficient, b; average stock’s beta, bA k. Security Market Line (SML) equation AppendixLO1