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Systematic Risk

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Systematic Risk

  • This topic has 6 replies, 3 voices, and was last updated 11 years ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • October 4, 2013 at 7:22 pm #142069
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • β˜†

    Assalam walaikum. Are business risk and the risk arising because of gearing, both of which we incorporate through Beta in CAPM, examples of Systematic Risk? Thank You… πŸ™‚

    October 5, 2013 at 8:37 am #142082
    nokia
    Member
    • Topics: 1
    • Replies: 63
    • β˜†β˜†

    Systematic risk is the Risk of fluctuation in equity value based upon factors beyond the control of entity i.e. those factors that effect whole of the securities listed on SE.

    Equity bets represents systematic business risk as well as systematic financial risk
    Asset beta represents only systematic business risk.

    Examples of systematic risk (though depends on the circumstances of the case and are subjective) are:
    – risk of change in base interest rates
    – risk of change in tax rates
    – risk of war or political instability, etc

    These are the factors which would effect the overall stock market.

    October 5, 2013 at 8:42 am #142083
    nokia
    Member
    • Topics: 1
    • Replies: 63
    • β˜†β˜†

    in CAPM we use equity beta because investor wants return against total systematic risk (business as well as financial)…

    For an ungeared co we use asset beta only because asset beta = equity beta becasue of zero financial risk

    October 5, 2013 at 11:48 am #142100
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • β˜†

    Thank you πŸ™‚

    October 6, 2013 at 10:34 am #142141
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • β˜†β˜†β˜†β˜†β˜†

    What nokia says is correct – systematic risk is the risk due to general economic factors. If there is gearing in the company then this increases the risk for the shareholders.

    October 7, 2013 at 10:24 am #142204
    babarali47
    Member
    • Topics: 16
    • Replies: 23
    • β˜†

    Thank you sir πŸ™‚

    October 7, 2013 at 2:38 pm #142219
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • β˜†β˜†β˜†β˜†β˜†

    You are welcome πŸ™‚

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