# The Capital Asset Pricing Model Examples 1 – 3

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1. says

Hi Mr Moffat,

Is the risk which we calculated using the standard deviation in the previous lectures, is it systematic risk based on the assumption of diversified portfolio? Or it is the total risk, also used in calculation of systematic & unsystematic risk (? total2 = ?systematic2 + ?unsystematic2)?
My apologies the formula above is not so clear.

Thanks
Soud Said.

2. says

Hi we calaculted Beta to be 2.64 in this example. Why is is when you mention it you dont round it up but down is that the genereal rule? that Beta is 2 not 3? Many thanks

• says

I do not think I ever said you don’t round up but round down! You must have misheard me.

We usually quote beta to two decimal places.

Where rounding is involved (anywhere in the exam) you round up or down to the nearest number. (If it is .5 then it doesn’t matter whether you go up or down )

3. says

Hello, I think I left this comment on the wrong topic! Not sure how that happened. But I was a bit confused in example 3, does standard deviation = market risk? thanks

4. says

Dear OT! I somehow do not hear the sound for that particular lecture! Could you please help me?

• says

@nailya1908, maybe you have clicked ‘mute’ button on the video player controls?

5. says

I hope i’m corrrect when i add that they are thesame. Use of the two terms arises when comparing risk of one sector (e.g petroleum) against that of the market as a whole.
somebody please correct me if i am wrong.

• says

@kateker,
Beta is systematic risk divided by market risk. In the example 2 systematic risk is 8%, market risk is 10%
So they are not the same..

• says

@yelen, In this context, the systematic risk is the individual company’s risk, and the market risk refers to the whole companies’s risk in the stock exchange.

The difference is only about the amount but nature is the same.

• says

@kateker, You are correct that the nature is the same, but be careful about the wording.
“Market risk” is the risk of the stock exchange as a whole (i.e. the average of the risks of all shares on the stock exchange).
The “systematic risk” of a particular share is that risk due to general economic factors (and risk due to factors peculiar to the company – “unsystematic risk” is ignored on the assumption shareholders have well-diversified portfolios.

(The risk of the market as a whole is only systematic because the market as a whole is perfectly well diversified).

Some shares have higher systematic risk than the market, and some have less. The risk of the market is the average of all of them.

6. says

thanks to opentuition……. for providing to students a very very useful and helpful study stuff………!!!1