Students will be able to answer - how is the total risk of firm measured? What is market risk? What is non-market risk? Which portion of risk can be reduced through diversification? Given two stocks, which stock should have a higher risk premium based on the CAPM? DATA Questions and Answer Sheet 1 2 3 4 5 6 7 8 9 10 11 121 131 14 15 16 Year S&P 500 Returns Company A Returns Milburn 1997 33.361 28.39 1998 28.58 21.02 1999 21.04 17 2000 -9.11 4.7 2001 -11.88 3.29 2002) -22.1 13.84 2003 28.68 26.67 2004 10.88 7.57 2005 4.91 11.92 2006 15.79 10.76 2007 5.49 11.85 2008 -37 5.33 2009 26.46 7.72 20101 15.06 20.41 2011 2.11 -7.2 2012 16 7.92 2013 32.39 2.07 2014 13.69 21.991 2015 1.38 1.76 2016 11.96 17.99 20171 21.83 13.97 Company B Returns Hedge Fund 22.35 8.23 36.56 12.19 6.77 1.42 17.99 8.8 10.67 12.39 10.22 -21.63 23.74 10.88 -5.48 8.25 11.12 2.88 0.04 6.1 10.36 18 19 20 21 the questions in the first picture should be answered by the data in a second picture and thanks