Investments

Question 1

CAPM

Answer 1

Capital Asset Pricing Model
- used to estimate risk
-determine optimum price of asset
- market itself is set as a benchmark representing the optimum risky portfolio

Question 2

Total risk

Answer 2

1. Systematic risk ( market risk)
   - market fluctuation
   -economic condition
   -random variation in return
   Beyond control
2. Unsystematic Risk( specific risk)
   - unique to each asset
   Caused by employee strike , bankruptcy

Question 3

Alpha & Beta

Answer 3

Alpha- measure unsystematic risk
Beta- measure systematic risk

Question 4

Asset allocation

Answer 4

1. Strategic asset allocation ( inv policy asset mix)
   - goal to design an optimal portfolio with max return for a given level of risk
2. Tactical Asset Allocation
   - active management. Strategy
   -adding value by temp departing from long term policy mix
   - respond to changing patterns of returns in the market