Query- CAPM assume that there is homogeneous expectations and there is only systematic risk. And for calculating the Asset Pricing, Expected Cash Flows is uncertain and includes both systematic and unsystematic risk. So while calculating the P0, we use Re- (1+Re) but Re only captured by Beta and Rf- so here also unsystematic Risk ignores. So the P0 that has been arrived has not considered the Unsystematic Risk. So why we should not adjust the Risk Premium while calculating Price via CAPM?
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It is assumed that investors are rational and will diversify in their portfolio to eliminate unsystematic risk. So reward should be provided for taking systematic risk only. If we consider the unsystematic risk too, we will be rewarding the investor for undertaking that as well, which is not consistent with CAPM.