The following are estimates for a stock A. Stock Expected ret. beta firm-specific variance, or Var(e) A 0.15 1.3 0.34 The market index has a standard deviation of 0.22, and the risk-free rate is 0.03 What percentage of stock A's total risk is attributable to systematic risk (or market risk)? Here consider variance as the risk measure. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321
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.
The following are estimates for a stock A.
| Stock | Expected ret. | beta | firm-specific variance, or Var(e) |
| A | 0.15 | 1.3 | 0.34 |
The market index has a standard deviation of 0.22, and the risk-free rate is 0.03
What percentage of stock A's total risk is attributable to systematic risk (or market risk)? Here consider variance as the risk measure.
Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.
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