Basic concepts theory Let retired two ago from a smell iberal arts college in Georgia for 35 ye Yesterday, Izzy appear on EC LIVE, a television show Barbara eighair is the host of EcuVE, and one of Professor tzzy's former students. finance and focal com Produced teaching corporate for the students, faculty and staff on the EU words wing is transcript of the interview. Unfortunately the software that transcribes the into written form failed to understand several and phrases used in the interview. To complete the intervie from each dropdown transcript and demonstrate your knowledge of the risks and returns investing, please select menu of Barbara Good Professor Invest-a-Lot I'd like to welcome you to EC LIVE, and thank you for coming in today to offer us insights into the basics of investing. remember your course wel, end le my grades didn't always reflect great success, twas always very I interested in the material and the possibility of using the concepts and techniques when opportunities arose the tzzy Good morning, Barbara, and please cal me, izzy, Thank you for the invitation to discuss one of the important fundamental nvesting: an appreci on of the relationship between the objedive or outcome of the likelihood of receiving it, or the investment's a Let's beg n with the way that risk can or should be-analyzed 1zzy, at is investment risk, and how should it be evaluated? zzy An investment's ri or the probability n be ts expected retu considered from two perspectives: that of ltiple-asset porttalio nd that of set, or a single The risk of a single asset of the asset's possible outcomes, while the risk of an asset best measured by the in a multiple-asset portfolio is best measured by its Barbara Now, 1 seem to recall that there are two major types of risk affecting security: systematic and systematic risk. What is the difference between them, and is there a way to reduce your exposure to them? Izzy Those fantastic questions! that affect the majority of firms and Its from pl systematic risk, possible to diversify away ost firms, it rket risk affect circumst securities. Since the this type of risk. because it results from ents and phenomena her hand, is risk, Unsystematic, or pany-spec that are unique to a particular individual firm. Examples of these events or phenomena indude, but are not limited to, earthquakes n investor's rketing campaigns. As the nd tornados, labor unrest and strikes, and lawsuits estor's portfoli ber of securities held in the unsystematic risk can be diversified away by The reduced riskiness of the market portfolio is reinforced by noting that the standard deviation of the average single-stock portfolio deviation of the market portfolio, hich assumed to contain approximately stocks, is is 3s%, whereas the standa 20%. Therefore, the addition of more and more randomly selected stocks to the portfolio Barbara That makes sense. So what does this mean for the returns eamed on an investment? Izzy In short, it means that a rational investor can only expect to be compensated for his or her exposure to He she will not be compensated for the risk that could be eliminated by increasing the size of his or her portfolio Barbara so, the market will not compensate me for not doing what a rational investor could-and should-do, 1s that right? absolutely correct. The fact that you, as an investor, do not choose to act rationally be compensated. Izzy That