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 Students learn finance basics.

# INTRO TO RISK, RETURN, AND OPPORTUNITY COST OF CAPITAL

Concept:   Risk, Return, and Opportunity Cost of Capital

Objectives

• Understand and define investment portfolio
• Understand and determine how to measure portfolio risk
• Understand the concept of variance and standard deviation
• Understand how to measure variability
• Understand how diversification reduces risk
• Understand and determine how to calculate portfolio risk
• Understand the concept of beta & market risk

RISK RETURN LESSON PLAN

Teaching Materials

• Lesson - Intro to Risk, Return, and Opportunity Cost of Capital  (see below for printable lesson)

• Many pre-calculated examples

Lesson Activity

• Define risk and return
• Discuss the relationship between the two – high/high or low/low
• Introduce concept of investment portfolio
• Define portfolio risk
• Introduce variance
• measure of uncertainty
• present formula
• work through examples
• Introduce Standard Deviation
• present formula
• talk about using a calculator to calculate SD and variance
• Discuss the concept of diversification
• Discuss real life examples – stocks, bonds, money market vehicles, large cap, small cap, foreign markets, etc…
• Introduce covariance
• present formula
• work through examples
• Work through SD of a portfolio
• Discuss Beta
• look at calculation of portfolio beta
• work through examples
• negative versus positive beta

Assessment/Evaluation

Have students complete worksheet. A passing grade is 70% or greater.

Print out the teaching lesson pages and exercise worksheets for use with this lesson:

 RISK AND RETURN LESSON Lesson and worksheet. Back to more Basic Finance and Economics Lessons, Lesson Plans, and Worksheets             For teaching and learning general money skills, personal finance, and money management, please go to the Money Instructor home page.

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