TPS2602 Portfolio 2024/Measuring risk of a portfolio TP1 - Week 9.

TPS2602 Portfolio 2024/Measuring risk of a portfolio TP1 - Week 9. By lw Describe the capital asset pricing model. - CORRECT ANSWERS-Measured in the form of beta (beta = a systematic risk captured by sensitivity to the market risk in terms of stocks variance relative to the market) Describe the meaning of Beta. - CORRECT ANSWERS-B = 0, stock has no correlation to market B = 1, equally risky as market B>1, more risky than market B<1, less riskier than the market Negative beta, stock has -ve correlation Positive beta, stock has +ve correlation How can the total risk be defined? - CORRECT ANSWERS-Systematic risk + unsystematic risk. How do we measure systematic risk? - CORRECT ANSWERS-Measured using the capital asset pricing model. What are securities in a portfolio? - CORRECT ANSWERS-Any stocks, bonds and other financial instruments you have purchased. What are the capital asset pricing model assumptions. - CORRECT ANSWERSInvestors are risk averse, rational and utility maximising. Markets are frictionless (unlimited borrowing and short selling, no transaction costs and taxes) All investors have same one period All investors homogenous expectations All investors infinitely divisible Investors are price takers (can't influence price) What can a portfolio of securities diversify? - CORRECT ANSWERS-Can diversify the unsystematic risk but not systematic What is a market portfolio?