An Asset Has a Beta of 1 $\sigma _ { m } ^ { 2 }$

question 4

Essay

An asset has a beta of 1.20. The variance of returns on a market index, $\sigma _ { m } ^ { 2 }$ is 225. If the variance of returns for the asset is 400, what proportion of the asset's total risk is systematic, and what proportion is residual risk?

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Definitions:

Fixed Manufacturing Overhead

Costs in manufacturing that do not change with the level of production, such as rent, salaries, and insurance.

Volume Variance

A metric used to measure the difference between the budgeted quantity of output and the actual output, often analyzed to assess performance or plan for future action.

Fixed Manufacturing Overhead

These are production costs that do not change with the level of production output, such as rent for factory buildings or salaries for factory management.

Overhead Applied

The portion of estimated manufacturing overhead cost that is charged to individual jobs based on the predetermined overhead rate.