Draw distinctions between 'Standard Deviation' and 'Beta' as measures of risk

See explanation.

Step-by-step explanation

Of the 100,000,

10% is invested in A

40% is invested in B

20% is invested in C

30% is invested in D

The expected value of beta

E(beta) = 0.10(1.2) +0.40(0.95) +0.20(1.10)+ 0.30(1.50) =

1.17

According to the CAPM, the expected return of the portfolio =

E(r) = risk-free rate + beta ( market return -risk-free return) =

6.5% + 1.17(12.5%-6.5%) =

6.5% +7.02% =

13.52%

If systematic risk (beta) is not taken into consideration,

the expected value of returns =

0.10(15%) +0.40(10%) +0.20(12%) + 0.30(18%) =

13.30%.

Systematic risk is the risk related to the particular asset and not to the other assets.

This risk is shown by beta.
The total risk premium = beta ( market return - risk-free return)

Unsystematic risk is associated with all assets.