Asked by Avery Villa on Jul 22, 2024
Verified
Which of the following is the best definition of systematic risk?
A) A theory showing that the expected return on any risky asset is a linear combination of various factors.
B) A risk that affects at most a small number of assets. Also called unique or asset-specific risks.
C) A risk that influences a large number of assets. Also called market risk.
D) Positively sloped straight line displaying the relationship between expected return and beta.
E) Principle stating that spreading an investment across a number of assets eliminates some, but not all, of the risk.
Systematic Risk
The risk inherent to the entire market or market segment, unmitigable through diversification, often related to economic, political, or societal factors.
Market Risk
The potential for an investor to experience losses due to factors that affect the overall performance of the financial markets.
Large Number of Assets
Refers to having a substantial amount of different assets, typically to diversify and reduce risk.
- Comprehend and differentiate between systematic risks (non-diversifiable) and unsystematic risks (diversifiable).
Verified Answer
AB
Akshay BanerjeeJul 28, 2024
Final Answer :
C
Explanation :
Systematic risk refers to the risk that affects a large number of assets, typically encompassing market-wide risks such as economic recessions, political turmoil, or changes in interest rates. It is also known as market risk because it affects the overall market and not just specific assets.
Learning Objectives
- Comprehend and differentiate between systematic risks (non-diversifiable) and unsystematic risks (diversifiable).