The market risk can be calculated by the betas of the

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risks: an inflation beta, a GNP beta, and an interest-rate beta. The market risk can be calculated by the betas of the interest, inflation and gross national product. One basic assumption of portfolio theory is that as an investor you want to maximize the returns from your total set of investments for a given level of risk. The full spectrum of investments must be considered because the returns from all these investments interact, and this relationship among the returns for assets in the portfolio is important. Hence, a good portfolio is not simply a collection of individually good investments. There are several risks that are associated with the stocks and assets. So as to averse the risk the investor focuses on building up a diversified group of assets which helps in mitigating the risk of the total investment. The total stock beta of the portfolio is .81. Capital asset pricing model (CAPM), is a model that indicates what should be the expected or required rates of return on risky assets. This transition is important because it helps you to value an asset by providing an appropriate discount rate to use in any valuation model. Alternatively, if you have already estimated the rate of return that you think you will earn on an investment, you can compare this estimated rate of return to the required rate of return implied by the CAPM and determine whether the asset is undervalued, overvalued, or properly valued. The CAPM states
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