5. Risk and Return Characteristics of Equity Securities

e. compare the risk and return characteristics of different types of equity securities;

What are the two main categories that make up an equity’s return? - Capital gains/losses are the difference between the net sales price of a stock and its net cost. - Dividends are the portion of the firm’s earnings paid to common and preferred shareholders.

What is the risk of an equity security and how is it measured? The risk of an equity security is the uncertainty of its expected total return. The measurement of the risk is typically the standard deviation of its expected total return over a number of periods.