FIN415 Risk Measurement Techniques

FIN415 Risk Measurement Techniques - Risk Measurement...

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Risk Measurement Techniques 1 Risk Measurement Techniques FIN/415 Risk Measurement Techniques Risk measurement is the process of evaluating the magnitude of risks, which involves the development of a set of factors that are observed and measured in order to detect the presence
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Risk Measurement Techniques 2 of a risk. Risks are measured by what factors may cause the business to fail. This paper will discuss three techniques for measuring risk (measuring market risk, required rate of return, and capital asset market model) their uses and applications. Measuring Market Risk Market risk is the risk that the value of a portfolio will decrease due to changes in the value of the market risk factors. These factors include commodity prices, foreign exchange rates, interest rates, and stock prices. Market risk is also known as systematic risk, which is defined by Keown, Martin and Petty (2007) as risks related to investment returns that cannot be eliminated through diversification and risks of projects from a well-diversified shareholders view point. This risk measurement technique takes into account that some projects risks are diversified away as projects are combined and the rest are diversified away by shareholders as
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This note was uploaded on 08/22/2011 for the course BUS 415 taught by Professor Barnes during the Spring '11 term at Coastal Carolina University.

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FIN415 Risk Measurement Techniques - Risk Measurement...

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