2. RISK
Total Risk = Systematic + Unsystematic Risk
Systematic Risk is also called Nondiversifiable
Risk or Market Risk
Unsystematic Risk is also called Diversifiable
Risk or Unique Risk
4. Beta
Beta = How much systematic risk a
particular asset has relative to an average
asset
For example:
XOM: 0.65
VIAB: 1.22
YHOO: 3.56
MII Portfolio: 1.54
5. Capital Asset Pricing Model
Er = Rf + B{E(Rm)-Rf}
Works for both individual assets
and portfolios
7. Expected Return depends on
3 things
The time value of money (risk-free rate, Rf)
The reward for bearing systematic risk
(market risk premium={E(Rm) - Rf}
The amount of systematic risk (Beta)