Systematic Risk and Unsystematic Risk; Beta Coefficient
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What is the difference between systematic risk and unsystematic risk? How can the beta coefficient be used to assess risk? Is it better to maximize return or minimize risk? Why?
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Solution Summary
The response defines risk, systematic risk, unsystematic risk and gives examples of each before moving on to differentiate between the two. It then goes on to define Beta and its ability to minimize or maximize risk. The solution is 438 words in total and includes 5 references.
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What is the difference between systematic risk and unsystematic risk? How can the beta coefficient be used to assess risk? Is it better to maximize return or minimize risk? Why?
Risk is the probability of having losses. As per investopedia, Systematic Risk means the risk inherent to the entire market or entire market segment. This is also known as "un-diversifiable risk" or "market risk." Hence systematic risk represents the uncertainty related to overall market. For example the world economy is affected now by recession and contraction in GDP. According to estimates of Global Insight, Inc. released on November 14, 2008, global gross domestic product (GDP) is expected to grow more slowly in 2009, at an estimated rate of 1.1% compared to an estimated 2.7% in 2008. This may lead to ...
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