"""Create an educational video to explain the CFA Level 1 knowledge: Roy’s safety-first criterion 🎓 Content Requirements: Start with a clear, beginner-friendly definition of the concept Explain the core components and logic step by step Include simple numerical examples or visual analogies Add a short summary or key takeaways at the end Ensure the structure follows a logical teaching flow from concept to application 🎨 Visual and Layout Requirements: Full-screen visuals with centered, readable content Use smooth animations to transition between steps or sections Highlight important terms, formulas, and keywords with bright accent colors (e.g., yellow, red, blue) Avoid text crowding or overlap; leave clear visual spacing Use animated icons, graphs, or diagrams where appropriate (e.g., timelines, flowcharts, charts) Minimize blank space; keep each screen visually rich and balanced 🗣️ Tone and Style: Friendly, clear, and professional Focus on making the topic accessible for first-time learners Avoid excessive jargon; use plain language wherever possible Maintain alignment with CFA curriculum terminology and scope"""

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Welcome to our explanation of Roy's Safety-First Criterion, an important concept in CFA Level 1. Roy's Safety-First Criterion is a portfolio selection rule that helps investors choose the best portfolio when their main concern is avoiding returns below a specific minimum acceptable level. The key concept is to minimize the probability of falling below your threshold return, making it a risk-focused approach to portfolio selection. To apply Roy's Safety-First Criterion, we need three essential inputs. First, the Expected Portfolio Return, denoted as E(Rp), which represents the average return you expect from the portfolio. Second, the Portfolio Standard Deviation, denoted as sigma p, which measures the risk and volatility of the portfolio. Third, the Minimum Acceptable Return, denoted as RL, which is your threshold return - the level you want to stay above at all costs. These three components work together in the Safety-First formula. The Safety-First Ratio is calculated using a simple formula: the expected portfolio return minus the minimum acceptable return, divided by the portfolio standard deviation. A higher ratio is better because it means the expected return is further above the threshold relative to the portfolio's volatility, resulting in a lower probability of falling below the minimum acceptable return. The decision rule is straightforward: choose the portfolio with the highest Safety-First Ratio among all available options. Let's work through a numerical example. We have two portfolios to compare, with a minimum acceptable return of 3 percent. Portfolio A has an expected return of 12 percent and standard deviation of 8 percent. Portfolio B has an expected return of 10 percent and standard deviation of 5 percent. For Portfolio A, the Safety-First Ratio equals 12 minus 3, divided by 8, which equals 1.125. For Portfolio B, the ratio equals 10 minus 3, divided by 5, which equals 1.400. Since Portfolio B has the higher ratio of 1.400, we would choose Portfolio B according to Roy's Safety-First Criterion. Let's summarize the key takeaways for Roy's Safety-First Criterion. This method minimizes the probability of falling below your minimum acceptable return. The formula is expected portfolio return minus minimum acceptable return, divided by portfolio standard deviation. Always choose the portfolio with the highest ratio. This is a risk-focused approach perfect for conservative investors with minimum return requirements. Remember this concept well, as it frequently appears in CFA Level 1 portfolio selection questions. You now have a solid understanding of Roy's Safety-First Criterion!