The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 2.50 and a residual standard deviation of 30%. Required: a. Calculate the total variance for an increase of 0.25 in its beta. (Do not round intermediate calculations.) Total variance 0.3925 b. Calculate the total variance for an increase of (expression error) percentage points in its residual standard deviation. (Do not round intermediate calculations.) Total variance

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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.