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Finance Student’s Name Institutional Affiliation 11.3. a. Systematic risk b. Unsystematic risk c. Appears to be a systematic risk, but can be an unsystematic risk to a particular degree. d. This scenario can best be described as unsystematic risk. e. The scenario describe here in can only be an unsystematic risk. f. The scenario described in this question is systematic risk 11.4 a. A change in the systematic risk as a result of high inflation announcement leads to the prices in the market falling. b. When Big Widget’s earnings fell within analysts’ expectations, then there is no change in unsystematic risk, which mean that price of Big Widget will probably remain constant. c. When government reports an expansion of the economy, prices in the bourse will probably remain spike. d. The sudden death of the company’s directors qualifies as unsystematic risk, which means that the prices of Big Widget will probably fall. e. The increase in corporate taxes is part systematic and unsystematic risks as it affects the calculation of tax expenses of both Big Widget and companies trading on the bourse, and prices are likely to change. 11.8. This possibility exists. Theoretically, which is to develop a 0-beta portfolio of risky securities, where returns are equal to the risk-free rate (Bali, Brown & Caglayan, 2012). There is another possibility of a negative beta, and in which case, the return is less than the risk-free rate. 13. Expected return on the stock = risk-free rate + (expected return on the market – risk free rate)8beta = 0.036 + 1.23(0.109-0.036) = 12.579% The expected return = 12.58% 14. Expected return on
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