key element of Enterprise Risk Management (ERM):

1. Internal Environment:
 This involves the foundation of ERM, including the organization's risk management
philosophy, risk appetite, integrity, ethical values, and environment in which it
operates. It sets the tone for how risk is perceived and managed throughout the
organization.
2. Objective Setting:
 Objectives provide a framework for ERM, defining what the organization aims to
achieve. These objectives should be aligned with the organization's mission and
vision and should consider risks that may impact their achievement.
3. Event Identification:
 This involves identifying events or situations, both internal and external that could
affect the organization's ability to achieve its objectives. These events could be risks
or opportunities that may arise.
4. Risk Assessment:
 In this step, identified risks are analyzed and evaluated in terms of their likelihood of
occurring and their potential impact on the organization's objectives. Risk assessment
helps prioritize risks based on their significance.
 Inherent risk is the risk to an entity in the absence of any actions management might
take to alter either the risk’s likelihood or impact.
 Residual risk is the risk that remains after management’s response to the risk.
5. Risk Response:
 Once risks are assessed, organizations develop strategies to manage them. This can
include accepting, avoiding, reducing, or transferring risks. The chosen response
should align with the organization's risk appetite and objectives.
6. Control Activities:
 Control activities are the policies, procedures, and practices put in place to mitigate
risks and ensure that the organization's objectives are achieved efficiently and
effectively. These controls help safeguard assets, ensure compliance with regulations,
and enhance the reliability of financial reporting.
7. Information and Communication:
 Effective communication of risk-related information is essential for successful ERM.
This involves sharing relevant information across the organization, ensuring that
stakeholders are aware of risks and the organization's risk management efforts. It also
involves gathering feedback and insights to improve risk management processes.
8. Monitoring:
 ERM is an ongoing process that requires continuous monitoring and evaluation.
Monitoring involves tracking changes in the internal and external environment,
assessing the effectiveness of risk responses and control activities, and adapting the
risk management process as necessary.
 By integrating these key elements into their operations, organizations can build a
comprehensive and proactive approach to managing risks and achieving their
objectives.
Beta (𝛽𝑖) is the ratio of the covariance between the asset's returns and the benchmark returns to the
variance of the benchmark returns.

Capital Asset Pricing Model (CAPM), a widely used framework in finance for determining the
expected return on an asset. The formula for CAPM is:
𝐸(𝑅𝑖)=𝑅𝑓+𝛽𝑖(𝐸(𝑅𝑚)−𝑅𝑓)
Where:
 𝐸(𝑅𝑖) is the expected return on asset 𝑖i,
 𝑅𝑓 is the risk-free rate,
 𝛽𝑖 is the beta of asset 𝑖i,
 (𝑅𝑚) is the expected return of the market.

βi= Covariance(Ri,Rm) / (Variance (Rm)

Where:
 𝑅𝑖 = Returns of the asset
 𝑅𝑚= Returns of the benchmark
 Risk-free rate (𝑅f): 3%
 Expected return of the market portfolio ( 𝐸(𝑅𝑚): 8%
 Beta of the asset (𝛽𝑖): 1.2

Using the CAPM formula:

𝐸(𝑅𝑖)=𝑅𝑓+𝛽𝑖(𝐸(𝑅𝑚)−𝑅𝑓)

Substitute the values:

(𝑅𝑖)=0.03+1.2×(0.08−0.03)

(𝑅𝑖)=0.03+1.2×0.05

(𝑅𝑖)=0.03+0.06

(𝑅𝑖)=0.09

So, according to CAPM, the expected return on the asset would be 9%. This means that
given its beta of 1.2 and the market conditions, investors would expect a return of 9% on this
asset.