1. Risk and Return

2. Expected return How do you calculate this? – States of the economy table What does it mean?

3. Standard deviation How do you calculate this? – Five steps Measures risk – Fluctuations around the mean

4. Relationship between E(R) and σ Normal distribution +/-1σ and +/-2σ Risk aversion – How does this factor into investment choices?

5. Portfolio Analysis Graph – unsystematic versus systematic risk Expected return – Weighted average Standard deviation – Build new column on table – Then five steps

6. CAPM Capital Asset Pricing Model (CAPM) – Equation – How does this relate to the required return for a stock?

7. Comparing E(R) to R How do E(R) and R relate to each other? How can you use this relationship to make investment decisions?