Chapter 11 Introduction to Risk, Return,and the Opportunity Cost of Capital

1 What is idiosyncratic risk? How does it differ from market risk?

2 - Calculate the nominal and real returns as well as the nominal and real risk premiums for the following corporate bond investment: Purchased for $940 one year ago, 4% coupon rate, sold for $994. The inflation rate was 5.0% and T-bills returned 6%. Show your work.

3 How are the Dow Jones Industrial Average and the S&P 500 Index different?

4 - Calculate the expected return, variance, and standard deviation for a portfolio of four equally-weighted stocks with returns of 26.4%, -9.2%, 2.9%, and 22.0%. (Show your work)

5 - What is standard deviation? What type of risk does it measure?