1.What is the expected rate of return of a zero-beta security?
The expected rate of return for a zero-beta security is equal to the risk-free rate.
This is because a zero-beta security has no sensitivity to market movements and
therefore doesn't carry any systematic risk. Consequently, it only offers the risk-
free rate of return.
2.What is the expected rate of return on the market portfolio?
The expected rate of return on the market portfolio is not a fixed number and
varies based on historical data and future expectations. It is generally calculated as
the weighted average of the expected returns of all assets in the market portfolio,
with each asset's weight reflecting its market capitalization. A theoretical portfolio
that holds all assets in the market, weighted by their market capitalization.
3.Define Risk, Return & Uncertainty?
Risk Return Uncertainty
Risk is the uncertainty A return is the gain or Uncertainty refers to a situation
associated with an loss, expressed as a where the outcomes of an event
or investment are unpredictable,
investment or financial percentage, on an
and the probabilities of different
decision that has the investment over a
outcomes cannot be accurately
potential to negatively specific period. It estimated. Unlike risk, which can
impact financial essentially measures the be quantified with probabilities,
welfare. This can arise profitability or uncertainty involves situations
from various factors, performance of an where there's a lack of
including market investment, taking into knowledge or information to
make reliable predictions. This
fluctuations, company- account factors like price
can lead to difficulty in making
specific events, or changes, interest, and
informed financial decisions and
even global economic dividends can create anxiety and stress for
conditions individuals or organizations.
4.CAPM?
The Capital Asset Pricing Model (CAPM) is a financial model used to
determine the expected rate of return for an asset based on its risk and
the risk-free rate. It establishes a linear relationship between systematic
risk and expected return, offering a way to estimate the cost of capital
and assess the desirability of an investment.
Systematic Risk Unsystematic Risk
Systematic risk, also known as Unsystematic risk refers to risks that are
market risk or non-diversifiable risk, not shared with a wider market or
refers to the risk that impacts the industry. Unsystematic risks are often
entire market or a large portion of specific to an individual company, due
it, rather than specific individual to their management, financial
stocks or industries. These risks are obligations, or location. Unlike
inherent in the market and cannot systematic risks, unsystematic risks can
be eliminated through be reduced by diversifying one's
diversification. They are typically investments. Unsystematic risk refers
caused by macroeconomic factors to risks that are not shared with a wider
and events that affect the overall market or industry. Unsystematic
economy, such as recessions, risks are often specific to an individual
interest rate changes, inflation, or company, due to their management,
natural disasters financial obligations, or location. Unlike
systematic risks, unsystematic risks can
be reduced by diversifying one's
investments
