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Unformatted text preview: considered the same as unsystematic,
unique or asset-specific risk
If we hold only one asset, or assets in the same
industry, then we are exposing ourselves to risk
that we could diversify away
26 Total Risk Total risk = systematic risk + unsystematic risk
The standard deviation of returns is a measure
of total risk
For well-diversified portfolios, unsystematic risk
is very small
Consequently, the total risk for a diversified
portfolio is essentially equivalent to the
27 Systematic Risk Principle There is a reward for bearing risk There is not a reward for bearing risk
unnecessarily The expected return on a risky asset
depends only on that asset’s systematic
risk since unsystematic risk can be
28 Table 13.8 29
29 Measuring Systematic Risk How do we measure systematic risk?
We use the beta coefficient to measure
What does beta tell us? A beta of 1 implies the asset has the same...
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This document was uploaded on 03/01/2014 for the course FINANCE 250 at Indiana.
- Spring '14