Sport Management Ch. 3 Flashcards
(17 cards)
What does risk measure?
Chance that an unfavorable event will occur
How does risk affect finance in sports?
Affects investing in new players, free agents, and stadium renovations
What is the formula for Rate of Return?
Rate of return = (amount received - amount invested) / amount invested
What does risk measure in relation to rates of return?
Measurement of the volatility of rates of return
True or False: Lesser risk results in higher returns.
False
Define Deferred Compensation.
Salary is delayed under contractual terms
Name three sports teams mentioned in relation to Deferred Compensation.
- Diamondbacks
- Penguins
- Mets
What factors are considered when measuring risk?
- Chance of making a profit or loss
- Level of risk
- Risk of time
What is the Nominal Interest Rate composed of?
K = K* + IP + DRP + LP + MRP
What does the Risk Free Rate of Interest (K*) represent?
Rate of interest on a riskless security if inflation were not expected
What is the purpose of the Inflation Premium (IP)?
Compensates investor for loss of purchasing power over time
What does Default Risk Premium (DRP) refer to?
Risk that a borrower might default
What does Liquidity Premium (LP) account for?
Marketability premium
What does Maturity Risk Premium (MRP) account for?
Risk of time and interest rate risk
What are Investment Risks?
Measurement of likelihood of low or negative future returns
What is Stand Alone Risk?
One approach to analyzing investment risk
List three sources of risk.
- Economic conditions
- Political Developments
- Global issues
