Question:

You are the business finance manager of a company. Explain to your director the difference

between market risks and diversifiable risks. Your company has considerable amount of

money for investment the local stock market. Discuss the risks of investment in common

stocks. Explain, with examples, how you would measure risk of a single asset and risk of a

portfolio of assets. Explain with examples, 5 ways in which common stocks are evaluated.

Part 1:

Explain the difference between market risk and diversifiable risks.

Part 2:

Discuss the risks associated with investment in common stocks.

Part 3:

Show examples to show how to calculate expected return and SD of a single asset, with probability

and without probability stated. Show example to show how to calculate expected return and SD

of an investment consisting several assets.