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yenuar says

Hello John!

As I understood, in Example 7 we assume that there is no unsystematic risk so the total risk equals systematic risk (well-diversified portfolio). Why do we use correlation coefficient if the systematic risk is already given? Or maybe when we are given the correlation coefficient, which takes into account market imperfections, the assumption is not applicable and we adjust both the beta (12/4 * 0.7) and standard deviation (12 * 0.7) by the correlation coefficient, right?

John Moffat says

There is unsystematic risk in example 7 – the total risk is 12% but not all of this is systematic risk.

The coefficient of correlation = covariance of inv with mkt / (std devn (inv) x std devn mkt)

Beta = covariance of inv with mkt / (std devn mkt)^2

So…..beta = coeff of correlation x (std devn inv / std devn mkt)

(Std devn of inv in all the lines above is the total std devn of the investment – i.e. the measure of total risk in the investment)

The rest of the answer follows from there.

yenuar says

Thank you!

iddamalgoda says

Thank you

tinashe says

I must admit though that i find it more interesting when the tutor takes you through the question answering, its as if you are in a visual class. Trully appreciated. keep up the good work.

John Moffat says

Thank you

sabin says

plz do the solution of example 7

John Moffat says

You can find the solution to this (and to all the examples) at the end of the Course Notes.

slobodanm says

very good.

marcomota says

dont manage to watch the full video

it stops around minute 17

can u pls check?

thanks in advance

marco