1.3 Flashcards
1
Q
Systematic Risk
A
Part of the system / market; SML; Not unique; rewardable; Beta is measurement tool if R2 is above 70% - this means that the security correlates to the market, and this can be used. PRIME - Purchasing power, reinvestment rate (int up, bonds down, reinv risk down), interest rate risk, market risk, exchange risk
1
Q
Unsystematic Risk
A
Diversifiable; not part of the system; non-market; unique/choice; BFDC - Business (company, industry); Financial; Default/Debt; Country (not currency); Events; Tax Changes; Money Manager; Prepayment: Liquidity; Callable. Cannot be eliminated.
