BUSN379 Basics of Risk

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BUSN379 Basics of Risk
What is the difference between systematic and nonsystematic risk? What are some examples of

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BUSN379 Basics of Risk

BUSN379 Basics of Risk

Discussions Week 5 All Students Posts 20 Pages 

What is the difference between systematic and nonsystematic risk? What are some examples of each?  Class, last week we learned that projects are subject to risk. Consider some of the examples we learned last week. What systematic and non-systematic risks can you identify? Why is it important to differentiate between these two? How do systematic risks affect the diversification process?

A market is a “group” of assets. These could be a group of stocks or bonds. To understand the concept of a market within the context of beta, you need to understand that beta is a mathematical and statistical measure that compares the changes in return of any given asset to a “market”. For instance, a given asset could be Coca Cola. Because Coca Cola stock is traded in the S&P500, in order to obtain Coca Cola’s beta we would compare the changes in return for its stock vis-a-vis those of the S&P500. If the beta resulting from this analysis is higher than 1, we would say that Coca Cola has more systematic risk that all the companies in the S&P500 combined and viceversa. With this idea in mind:
1. What other markets can you think of?
2. If Coca Cola also trades in the New York Stock Exchange (NYSE) may we find a different beta for it?…