Perfect Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly

Market structure can be defined as the characteristics of the market which can be either competitive or organizational, which outlines the nature of the competition and the pricing procedure in the market. It is, therefore, describes the number of entities…

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Economies and Diseconomies of Scale

Economies of Scale Economies of scale refer to the cost advantage that is brought about by an increase in the output of a product. It arises due to the inverse relationship that exists between the per-unit fixed cost and the…

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Calculating Covariance Given a Joint Probability Function

We can calculate the covariance between two asset returns given the joint probability distribution. Consider the following example:

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Portfolio Returns

A portfolio is basically a collection of investments held by a company, mutual fund or even an individual investor, consisting of assets such as stocks, bonds or cash equivalents. A portfolio is usually managed by financial professionals.

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Covariance and Correlation

Covariance The covariance is a measure of the degree of co-movement between two random variables. For instance, we could be interested in the degree of co-movement between the rate of interest and the rate of inflation. The general formula used…

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Tree Diagram

A tree diagram is a visual representation of all possible future outcomes and the associated probabilities of a random variable. Tree diagrams are particularly useful when we have several possible outcomes and can help you record all the possibilities in…

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Application of Conditional Expectations in Investments

Conditional expectation in the context of investments refers to the expected value of an investment given a certain set of real world events that are relevant to that particular investment. What this means is that analysts calculate and predict the…

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Code of Ethics and Standards of Professional Conduct

CFA Institute Professional Conduct Program and the Process for Enforcement of Code and Standards Violations of the CFA codes and standards are reviewed through the CFA Institute’s Professional Standards and Policy Committee (PSPC). This committee is authorized to conduct investigations…

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Ethics and Trust in the Investment Profession

Ethics Defined Many professions define a code of ethics aimed at outlining cultural values within that profession. For the investment industry, ethics are defined as a standard of conduct valued by the financial sector. These can be expressed via concrete rules…

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Break-even and Shut-down Point of Production

Break-even Point of Production The break-even point can be defined as the production and sales levels of a given product at which the revenue generated from the sales is perfectly equal to the production cost. At this point, the company…

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