The systematic risk principle states that the expected return on a risky asset depends only on which of the following?
A. Asset-specific risk
B. Diversifiable risk
C. Unique risk
D. Market risk
Choose an option and explain.
Common stock and bonds are often purchased as investments. Common stock exchanges equity shares in the company and bonds are debt securities that are repaid with interest. There are different types of risks associated with each investment such as systematic risk and diversifiable risk.
Answer and Explanation:
Answer choice D. Market risk
Systematic risk is a risk that affects the entire stock market not just one company or industry. This type of risk cannot be diversified through a variety of investments because it affects all of them. This type of risk can also be called market risk.
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from Finance 305: Risk ManagementChapter 3 / Lesson 3