Q1 A

i ii iii iv=i*ii v=i*iii

Expected Expected
Probability Apple Qmobile Return Return
Apple Qmobile
0.2 -11% -27% -2.20% -5.4%
0.3 3% 0% 0.90% 0.0%
0.4 11% 23% 4.40% 9.2%
0.1 28% 40% 2.80% 4.0%

5.90% 7.80%

Expected Rate of Return

for Apple 5.9%

Expected Rate of Return

for Qmobile 7.8%

Answer B

Expected SD of Apple = 1.19%^0.5 11%

Expected SD of Qmobile =
1.19%^0.5
21%

Answer C

Coefficient of Variation 11%/5.90% 1.86

for Apple = SD/Mean

Coefficient of Variation 21%/7.80% 2.69

for Qmobile = SD/Mean

In a stand-alone risk sense Apple is less risky than Qmobile, if stock Qmobile is less highly corelated with

Expexted
(B) Amount Rate Return
Expected Rate of Return
on Apple 200,000 5.90% 11,800
Expected Rate of Return
on Qmobile 200,000 7.80% 15,600

Q.2 Company Unique Risk

Systematic Risk
Company Unique Risk
Unsystematic risk is company specific or industry specific risk. This is risk attributable or specific to the in
Examples of risk that might be specific to individual companies or industries are business risk, financing r
The important concept of unsystematic risk is that it is not correlated to market risk and can be nearly el

Systematic Risk
Systematic risk is the risk that is simply inherent in the stock market. If there is an event or announceme
Unlike with unsystematic risk, investors can protect themselves against systematic risk. Different types o
 vi=i*(ii-5.9%)^2 vii=i*(iii-7.8%)^2

Variance Apple Variance Qmobile

0.57% 2.42%
0.03% 0.18%
0.10% 0.92%
0.49% 1.04%

1.19% 4.57%

ile is less highly corelated with the market than Apple, than it might have a lower beta than Apple, and hence be less risky in a portfolio se
attributable or specific to the individual investment or small group of investments. It is uncorrelated with stock market returns. Other nam
es are business risk, financing risk, credit risk, product risk, legal risk, liquidity risk, political risk, operational risk, etc. Unsystematic risks are
market risk and can be nearly eliminated by diversification.

ere is an event or announcement that impacts the entire stock market so most stocks go down in value, that is a reaction to systematic risk
stematic risk. Different types of stocks react differently to different types of systematic events. For example, if there is an announcement
ence be less risky in a portfolio sense.
stock market returns. Other names used to describe unsystematic risk are specific risk, diversifiable risk, idiosyncratic risk, and residual risk
al risk, etc. Unsystematic risks are considered governable by the company or industry.

hat is a reaction to systematic risk. It doesn't mean anything, specifically, about any individual stock; it just means investors in general are s
ple, if there is an announcement that the Federal Reserve is going to increase interest rates, bank stocks might drop lower than industrial s
syncratic risk, and residual risk

eans investors in general are spooked, and there is more selling occurring (which makes prices go down) than buying (which would make p
ht drop lower than industrial stocks. Or, if there is bad news about China's economic growth, which has included a lot of building, transpor
n buying (which would make prices go up).
ded a lot of building, transportation and mining stocks may go down more than banking stocks.