CAPM (OT) Flashcards
When profits don’t go up and down violently?
It is less risky
What is unsystematic risk?
Due to factors within the company
What is systematic risk (market risk)?
Risk due to general economic factors (e.g. inflation, exchange rates)
Systematic risk?
Affects all businesses. Level of this risk depends on industry
Oil risk and exchange rate?
Nukely affected
Examples of unsystematic risk?
Company appoints new MD
Poor labour relations
Unsystematic risk removal?
By creating a portfolio of shares
Can systematic risk be removed?
No it can’t, level depends on type of business
CAPM assumption for shareholders?
They are diversified (invest in many shares)
What does systematic risk determine?
The shareholders required rate of return
What does beta measure?
Measure the systematic risk relative to stock exchange as a whole
When beta equals 1?
1 * risk of market. The same risk as the market
When beta is 0?
It is risk free. No investments are like this.
Closet thing to beta 0?
Short-term government securities
