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Finance And Accounting - Essay Example

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Finance And Accounting

Contrast Systematic and Unsystematic Risk Systematic risks are the risks which are generated by various market factors. Usually, investors do not possess any control over these factors. Such risks are non-diversifiable in nature. They may happen due to some ‘non-probabilistic events’. Interest rates, wars, and recession are some of the important sources of this kind of risk as they are capable of affecting the whole market. In general, systematic risks cannot be insured. On the other hand, unsystematic risk is the risk that is found to be in association with the organizations’ operations and their ways of running the business. Since such risk is industry or company specific, it can be reduced by proper diversification. In other words, such risk is diversifiable in nature. Explain why the total risk of a portfolio is not simply equal to the weighted average of the risks of the securities in the portfolioThe total risk of a particular portfolio can be measured as the variance of the return of that portfolio. A portfolio’s risk is not equal to the weighted average of the risks of each and every security rather it is the combination of the weighted average of the risks of each and every securities and the weighted average of risks that are market-related. The first term represents the risks that are market-related with respect to individual securities, whereas the second part represents the weighted average of risks of the specific securities. ...Show more

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The paper "Finance And Accounting" gives answers to some questions related to risk quantification.The writer of the paper gives detailed information about systematic and unsystematic risk, the total risk of a portfolio and beta measures and its uses…
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