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Does standard deviation measure systematic or unsystematic risk?
Standard deviation is a measure of total risk, or both systematic and unsystematic risk. Unsystematic risk can be diversified away, systematic risk cannot and is measured as Beta.
How do you measure the risk of a single asset?
The total risk of a single asset is measured by the standard deviation of return on asset. Standard deviation is the square root of variance. To measure variance, you must have some distribution/ possibility of asset returns. However, the relevant risk of a single asset is the systematic risk, not the total risk. Systematic risk is the risk that cannot be diversified away in a portfolio. Systematic risk of an asset is measured by the Beta. Beta can be found using Regression (between market return and asset's return) or Covariance formula.
What is A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio It is this aspect of portfolios that allows investors to combine stocks?
Beta.
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 what is the beta coefficient?
the beta is 1 the beta is 1
What is the beta coeffficient when the the required rate of return is 13.75 the risk free return is 5 and the market risk is7?
13.75= 5 +7(BETA)13.75-5=7BETA8.75/7 = BETA1.25 = BETA
How the beta of a portfolio can equal the market beta if 50 percent of the portfolio is invested in a security that has twice the amount of systematic risk as an average risky security?
The beta of a portfolio is the weighted average of the betas of its individual securities. If 50 percent of the portfolio is invested in a security with a beta of 2 (twice the market's systematic risk), and the other 50 percent is invested in a security with a beta of 0 (no systematic risk), the portfolio's beta can be calculated as follows: (0.5 * 2) + (0.5 * 0) = 1. This means that the portfolio has a beta of 1, equal to the market beta, due to the balancing effect of the low-risk security.
Does beta measure nondiversifiable risk?
Yes, beta measures the sensitivity of an asset's returns to market movements, representing the nondiversifiable risk (systematic risk) of an investment. A beta of 1 indicates that the asset moves in line with the market, while a beta greater than 1 implies higher volatility, and a beta less than 1 indicates less volatility than the market.
How dangerous is beta carotene?
Beta-carotene is not dangerous but an excess must be avoided - a risk of hypervitaminose A exist.
How does beta affect the cost of equity in finance?
Beta measures a stock's volatility relative to the overall market, reflecting its systematic risk. A higher beta indicates greater risk, leading investors to demand a higher return, which increases the cost of equity. Conversely, a lower beta suggests less risk and results in a lower cost of equity. Thus, beta is a crucial component in the Capital Asset Pricing Model (CAPM), which calculates expected returns based on risk.
What does beta mean in reference to mutual funds?
AnswerbetaA quantitative measure of the volatility of a given stock, mutual fund, or portfolio, relative to the overall market, usually the S&P 500. Specifically, the performance the stock, fund or portfolio has experienced in the last 5 years as the S&P moved 1% up or down. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk,second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk.The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund.Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-Ã -vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not.Also read http://www.mutualfundplan.com/2008/08/measurement-of-risk-return-in-mutual.html for more details about various Risk measurement tools..
What does beta risk do to the determination of the cost of capital?
Beta risk arrived through regression technique (regressing stock return and market return) is the key data used to arrive at the cost of equity using CAPM model. The risk premium is calculated using Beta, and risk free return is added to it in order to arrive at cost of equity.
What information does beta give to a financial manager?
Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the asset's sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. On a portfolio level, measuring beta is thought to separate a manager's skill from his or her willingness to take risk.
