CAPM

Question 1

Unsystematic risk

Answer 1

risk unique to the individual company

Question 2

systematic risk

Answer 2

• the risk of the market. This applies to all companies which you can’t eliminate.
• Caused by macroeconomic factors eg. inflation

Question 3

Market portfolio

Answer 3

eliminates all unsystematic risk and you only require a return for the systematic risk
- Basis of CAPM

Question 4

Beta

Answer 4

measures how much systematic risk an individual share has, relative to the whole market’s average systematic risk