What is the total risk of portfolio as per Sharpe's Single Index Model if standard deviation of market is 20 % , beta of portfolio is 1.27, unsystematic risk in variance term of the portfolio is 107 a. 752.16 b. 400 c. 107 d. 626

What is the total risk of portfolio as per Sharpe's Single Index Model if standard deviation of market is 20 % , beta of portfolio is 1.27, unsystematic risk in variance term of the portfolio is 107 a. 752.16 b. 400 c. 107 d. 626

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

Question

What is the total risk of portfolio as per Sharpe's Single Index Model if standard deviation of market is 20 % , beta of portfolio is 1.27, unsystematic risk in variance term of the portfolio is 107

752.16

400

107

626

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