Question 1: What is the rationale for the positive correlation between risk and expected return? Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise, why is it not possible to eliminate systematic risk?

Q: Clearly explain why some risks are systematic and others non-systematic. How is it possible for an…

A: There are various types of risks that are faced by organizations in order to conduct its day to day…

Q: Optimal portfolios can be obtained without diversification. True or false?

A: optimal portfolio are the one that minimises the risk for given level of return.

Q: List which of the following statement(s) concerning risk are correct? I. Nondiversifiable risk is…

A: Risk is a factor which arises due to uncertain future factors. It can be generated through external…

Q: Why does the limitation of Portfolio analysis is it suggests the use of standard strategies that can…

A: Portfolio analysis is a combination of techniques that help an analyst to take tactical decision for…

Q: Which of the following risks can be eliminated through diversification? a. Systematic risk b.…

A: Idiosyncratic risk is a risk for a particular investment or company. It is also called unsystematic…

Q: Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, nd then…

A: In broad terms, some risks are diversifiable because they are specific to individual assets or…

Q: When can investors treat beta as a relevant risk measure and when can they treat beta as only a…

A: Beta or risk in the security and portfolio analysis is a statistical measure that is the variability…

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A: Expected Return on Portfolio  =( Weights of Stock 1 * Return of Stock 1) + ( Weights of Stock 2 *…

Q: 1. In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it…

A: Unsystematic risk is a risk that is distinctive to a particular firm or industry. Nonsystematic risk…

Q: Explain Systematic (market risk) and Business-specific risk. Can diversification of the portfolio…

A: Systematic risk: The risk associated to the whole segment of the market is called as systematic…

Q: Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer…

A: While making an investment, an investor is required to thoroughly examine all types of risks and…

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A:

Q: Why does the limitation of Portfolio analysis is It suggests the use of standard strategies that can…

A: The portfolio is basically a set of various financial instruments that are owned by an individual or…

Q: If we are speaking about the CAPM model and undiversifiable risks.    Then what is meant by…

A: CAPM model The Capital asset pricing model (CAPM) refers to an idea that describes the systematic…

Q: What assumption about risk-adjusted techniques for measuring performance poses a potential problem?…

A: Uneven price change is the main problem in the Risk adjusted performance measurement. Options given…

Q: Which of the following statements regarding unsystematic risk is accurate

A: Unsystematic Risk: It is the risk related to a particular investment and thus, is also called…

Q: What does it mean that portfolio diversification can reduce risk, and how does the efficient…

A: Risk is the measurable probability of loss on an investment. It includes the possibility of losing…

Q: How can an investor eliminate Unsystematic Risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk. Systematic risk is non…

Q: Explain if the operational risk is considered a risk or uncertainty? Why? If it is a risk, how can…

A: Operational Loss:   The risk involved in failures of Man, Machine, Material, and Methods during…

Q: How can an investor eliminate Systematic risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk

Q: What is idiosyncratic risk? How does it differ from market risk?

A: Idiosyncratic risk or unsystematic risk or specific risk is that risk which belongs to specific…

Q: broad terms, why are some risks diversifiable? Why are some risks non- diversifiable? Does it follow…

A: What is a diversifiable risk? Diversifiable risk(unsystematic risk)  is a risk associated with a…

Q: What does Jensen's alpha measure? a. An investor's reward in proportion to their assumption of…

A: Jensen's alpha is a single number that describes the predictive ability of a fund manager. The…

Q: why can  variance/volatility of returns be a misleading measure of risk for an individual asset held…

A: The portfolio reflects a combination of assets which will provide with the benefit of elimination of…

Q: Which one of the following statements is correct? Group of answer choices   The lower the average…

A: Risk premium: It is the difference between the expected returns and risk-free market rates. Correct…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.