What is the difference between systematic and unsystematic risk?
- A Systematic risk affects the whole market and cannot be diversified away; unsystematic risk is firm-specific and can be
- B Systematic risk is firm-specific; unsystematic risk affects the whole market
- C Both can be eliminated through diversification
- D Neither can be reduced by any means
Answer
Systematic risk affects the whole market and cannot be diversified away; unsystematic risk is firm-specific and can be
Diversification removes unsystematic risk, which is why CAPM only compensates investors for systematic risk as measured by beta.
Log in with Google
Log in with LinkedIn
.jpg)
.jpg)
