Question: Standard deviation Beta Security A 40% 0.5 Security B 20% 1.5 Which security has a greater total risk? Explain. (2marks) Which security has greater systematic

Standard deviation Beta

Security A 40% 0.5

Security B 20% 1.5

  1. Which security has a greater total risk? Explain. (2marks)
  2. Which security has greater systematic risk? Explain. (2marks)
  3. Can diversification eliminate systematic risk? Explain. (2marks)
  4. The security market line (SML) is used to describe the relationship between systematic risk and expected return. If an investment has a positive NPV, would it plot above or below the SML? Explain. (4 marks)

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