6 capm questions The relevant risk of an asset is the portio
6 capm questions The relevant risk of an asset is the portion of its total risk, whichcannot be diversified away when the asset is included in aportfolio. All investors must agree on the benchmark portfolio if they areto agree on the measure of an asset’s relevant risk. The CAPM provides assumptions under which all investors agreethat the benchmark portfolio is the portfolio of all risky assetsand is referred to as the Market Portfolio “M”. The relevant risk of a stock is its risk contribution to ‘M,” or,equivalently, that portion of its risk, which cannot be diversifiedaway by including it as an element of ‘M.’
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