1 25 25 diversifiable risk the risk that can be

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Unformatted text preview: considered the same as unsystematic, Often unique or asset-specific risk unique If we hold only one asset, or assets in the same If industry, then we are exposing ourselves to risk that we could diversify away that 26 26 Total Risk Total risk = systematic risk + unsystematic risk The standard deviation of returns is a measure The of total risk of For well-diversified portfolios, unsystematic risk For is very small is Consequently, the total risk for a diversified Consequently, portfolio is essentially equivalent to the systematic risk systematic 27 27 Systematic Risk Principle There is a reward for bearing risk There is not a reward for bearing risk There unnecessarily unnecessarily The expected return on a risky asset The depends only on that asset’s systematic risk since unsystematic risk can be diversified away diversified 28 28 Table 13.8 29 29 Measuring Systematic Risk How do we measure systematic risk? We use the beta coefficient to measure We systematic risk systematic 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.

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