Discuss the measure of total risk and compare systematic risk to nonsystematic risk. Also discuss why systematic risk is the relevant risk rather than total risk.

Discuss the distinction between a firm's unlevered beta and its levered beta.

Discuss tactics that a company might use to limit foreign exchange risk.

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Discuss the measure of total risk and compare systematic risk to nonsystematic risk. Also discuss why systematic risk is the relevant risk rather than total risk.

The total risk comprises of systematic risk and unsystematic risk. Systematic risk is a risk unique to a company such as fall in demand of an umbrella manufacturer if the rains are deficient while systematic risk is a risk which affects all the firms such as an increase or a decrease in interest rates.

The measure of total risk is the standard deviation is a measure of total risk. It measures the variation in the returns for a firm which may be due to systematic and unsystematic risk and so reflect the total risk of the firm.

Systematic risk is relevant since unsystematic risk can be diversified away. What this means is that we can construct a portfolio of securities such that the unsystematic risk of the portfolio is much lower as compared to the unsystematic risk of the individual securities. Total risk would be higher than systematic risk and so we would expect to have a higher return for total risk as compared to unsystematic risk which is ...

Solution Summary

The solution explains systematic risk, non-systematic risk, unlevered beta, levered beta and how to limit foreign exchange risk.

Risk free rate of 7% and market risk premium of 2 %. The best investment of these:
Expected Return of 9.01 / Beta 1.70
Expected Return of 7.06 / Beta 0.00
Expected Return of 5.04 / Beta -0.67
Expected Return of 8.74 / Beta 0.87
Expected Return of 11.50 / Beta 2.50
The 7.06 with Beta of 0.00 is best, but how do I calculat

The risk free rate is 5% and the market risk premium is 10%. The Ka equals 25% and the Kb equals 20%. What is the beta of a portfolio that contains only stocks A and B if 1/5 of funds are invested in A and the rest in B?
Instructors answer is Beta of portfolio equals 1.6
Show steps to obtain this solution.

Q2:
In a small economy the market portfolio is comprised of the following three companies:
Company Shares on Issue Price per share Expected Return
A 200,000 $5.00 8%
B 250,000 $4.00 12%
C 500,000 $2.50 16%
If the capital asset pricing model applies in this market and the risk-free rate is 6%, what is the beta of compan

1. The stock of Eastman Kodak has an estimated beta of 1.6. How would you interpret this beta value? How would you evaluate the firm's systematic risk.
2. The stock of Apple, Inc, has an estimated beta of 1.5. The current risk free rate is 5% and the market return is 7.4%. What is the required rate of return on he stock?

1. Risk- Free Rate
A stock has an expected return of 14 percent, a beta of 1.70, and the expected return on the market is 10 percent. What must the risk-free rate be?
Risk-Free Rate = ?
2. Market Risk Premium
A stock has a beta of .8 and an expected return of 13 percent. If the risk-free rate is 4.5 percent, what is the

CAPM and EXPECTED RETURN: The following table shows betas for several companies. How do I calculate each stock's expected rate of return using the CAPM. Assuming the risk-free rate of interest is 5 percent. Using a 9 percent risk premium for the market portfolio.
Company BETA
Cisco 2.03
CitiGr

If T-Bills have a 4% rateand the expected portfolio return is 12% How would I use the capital asset pricing model to determine
What the required investment with a beta of 1.5
and how do i determine NPV with a beta of .8 and the retun is projected to be 9.8%
and with a 11.2% market retun from stock x, what is the be