Asked by clara batista on Jul 05, 2024
Verified
The __________________ tells us that the expected return on a risky asset depends only on that asset's systematic risk.
A) Efficient Markets Hypothesis (EMH) .
B) Systematic risk principle.
C) Open Markets Theorem.
D) Law of One Price.
E) Principle of diversification.
Systematic Risk Principle
The concept that an investor can reduce the overall risk of an investment portfolio through diversification, except for inherent market risks that cannot be diversified away.
Efficient Markets Hypothesis
The efficient markets hypothesis is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.
- Gain insight into the connection between an asset's projected return and its systematic risk.
Verified Answer
JK
Jenny KrutillaJul 06, 2024
Final Answer :
B
Explanation :
The systematic risk principle is the concept that the expected return on a risky asset depends only on that asset's non-diversifiable risk, also known as its systematic risk. This principle underlies the Capital Asset Pricing Model (CAPM), which describes the relationship between systematic risk and expected return for assets, particularly stocks.
Learning Objectives
- Gain insight into the connection between an asset's projected return and its systematic risk.