question archive a) Describe the systematic and nonsystematic risk components of the following assets: - A risk-free asset, such as a three-month Treasury bill - The market portfolio, such as the S&P 500, with total risk of 25 percent b
a) Describe the systematic and nonsystematic risk components of the following assets: - A risk-free asset, such as a three-month Treasury bill - The market portfolio, such as the S&P 500, with total risk of 25 percent b
Subject:FinancePrice:2.86 Bought12
a) Describe the systematic and nonsystematic risk components of the following assets:
- A risk-free asset, such as a three-month Treasury bill
- The market portfolio, such as the S&P 500, with total risk of 25 percent
b. Consider two assets, A and B. Asset A has total risk of 28 percent, half of which is nonsystematic risk. Asset B has total risk of 18 percent, all of which is systematic risk. Which asset should have a higher expected rate of return?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
1.A. The risk free asset such as three month bill will not have any kind of systematic or unsystematic risk because it is always considered that they are free from risk.
B. Market portfolio with 25% of risk will reflect that the overall risk is due to the systematic factors because the portfolio is already diversified fully.
2. Those assets which are having higher degree of systematic risk are always having higher degree of expected rate of return because Capital Asset pricing model never consider unsystematic risk, so Asset B will be having higher expected rate of return because it is having higher systematic risk.
