1. What is risk? What two factors are important in determining the degree of risk?
2. Both investing and gambling can be defined as undertaking risk in order to earn a profit. Explain how these two activities are different and why society generally takes a more favorable view of investing compared to gambling.
3. Explain the concept of correlation. If two securities have a high positive correlation, what does that mean? Give an example of two securities that might be highly correlated. If two securities have a low positive correlation, what does this mean? Give an example of two securities that might have a low positive correlation. If two securities are negatively correlated, what does that mean? Give an example of two securities that might be negatively correlated.
4. What kind of risk do standard deviation and beta measure? Explain.