Under what circumstances are investors likely to ignore the unsystematic risk characteristics of a security?
A risk is anything that when it happens it causes an adverse variation of investment return. In any investment, there are some risks that are involved. Some of these risks include:
- Systematic risks.
- Unsystematic risks.
Answer and Explanation:
Unsystematic risks refer to the risk that is unique to a particular firm. An investor will ignore unsystematic risk in case there is a well-diversified portfolio. When the investor has a well-diversified portfolio then any unsystematic risk which can be assigned to any company will be offset by the portfolio, therefore, an investor tends to ignore unsystematic risks.
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Learn more about this topic:
from Finance 305: Risk ManagementChapter 3 / Lesson 3