Systematic Risk and the Equity Risk Premium - Measuring Systematic Risk

4 important questions on Systematic Risk and the Equity Risk Premium - Measuring Systematic Risk

What is a value-weighted portfolio?

A portfolio in which each security is held in proportio to its market capitalization

What is a market proxy?

A portfolio whose return is believed to closely track the true market portfolio

What does the S&P500 index contain?

A value-weighted portfolio of the 500 largest U.S. stocks
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What formula does one use to calculate β?

βi = SD(Ri) x Corr(Ri, Rmkt) / SD(RMkt) = Cov(Ri,RMkt)/Var(RMkt)

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