CHAPTER 5& 6 Required Rate of return = Minimum accepted
return to make investor willing to make an investment
Two Types of risks are assumed
1. Systematic Risk
Hits whole market
Cannot be controlled or diversified
Market Risk
Ex Inflation risk
1. Non Systematic Risk
Firms specific risk
Can be diversified using portfolio diversification between
sectors ,industries &geographical locations
Diversification can minimize or eliminate Non Systematic
risk
The risk of portfolio depends on the risk of individual stocks
included ,Correlation among them and the weight of stocks
Increasing number of stocks reduces risk to a certain limit after
which systematic risk is fixed and cannot be reduced by adding more
and more stocks Globalization means that risks affect markets
internationally accordingly globalization results in the fact that
non systematic risk may not be eliminated
