FIN-515- Managerial Finance Week 3_Risk Return and the CAPM _Discussion_Question_2_Answer

Apr 24th, 2015
Studypool Tutor
Price: $5 USD

Tutor description

FIN-515- Managerial Finance Week 3_Risk Return and the CAPM _Discussion_Question_2_Answer

Word Count: 3193
Showing Page: 1/7
Risk Return and the CAPM (graded) What is the relevant risk of a stock, and how is it measured? How is this information useful to an investor?Hello! Is beta an accurate measure of risk? Why or why not? I look forward to your replies!Is beta an accurate measure of risk? Why or why not? Beta is only a tool to assist you in your choice for investing and expectations for return. Like other variables the beta puts all bonds on the same measuring scale (big or small). Some pitfalls are that beta is calculated from historical information about the future. Beta also does not take under consideration future events. I equate it to the expiration date on milk. It is a prediction about how long it will last from past experience. So when you go to by milk, and the hopes is it will last for 2 weeks, you should take note of the predicted expiration date. That date does not mean that the milk will go bad on that day but it help make a choice, add value and confidence, and assess risk. From the side of the seller, milk that will go bad sooner will normally be marked down to ensure it is sold. By decreasing price increases value for the buyer. So if you needed milk to make a big meal then the extra value would draw the buyer to invest. I know this is a very rough example but it helped me. Beta is an accurate measure of risk because it measures how a stock affects the risk of a diversified portfolio. Diversifying a portfolio of stocks, in general, will reduce the risk of th

Review from student

Studypool Student
" Thanks, good work "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1830 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors