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    Measuring risk using Beta and CAPM Model

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    The CFO has requested from you, a risk assessment of Strident Marks. Think about the risks inherent in Strident Marks and how to quantify these risks. Download the data provided FIN310 ( Attached and calculate the measure of risk for this company (defined as Beta in the Capital Asset Pricing Model - CAPM) and explain why this calculation is a measure of risk. Discuss when this type of calculation is appropriate, and when the coefficient of variation is an appropriate measure of risk. Your work must analyze the specific calculations completed in the task.

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    Solution Preview

    Please see the attached files for complete solution. A potion of the soution is reproduced here. Thanks

    Risk Assessment:

    The risk assessment of a security can be done by using different measures of risk such as standard deviation of the return of the security, the beta of the security and coefficient of variation for the security. The standard deviation of the security is appropriate when we are interested in overall risk of the security and we are evaluating the security independently. Thus, we are interested in knowing what is the risk associated with the returns of the security.

    On the other hand when we are comparing two securities the independent measures of risk i.e. standard deviation is not ...

    Solution Summary

    The solution exhibits an understanding of what risk is and know how to measure it. I am specifically referring to the Capital Asset Pricing Model (CAPM), where risk is defined by a stock's Beta and is simply the correlation of a stock's returns to the market's returns. The solution also demonstrate an ability to use a spreadsheet to set up and perform this calculation. The solution contain a word file (approx 500 words) and an Excel file to ensure that the students understand how they can solve the similar problems.