Answered: Systematic risk is diversifiable, so it…

Business

Finance

Systematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True False

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 8QTD

See similar textbooks

Related questions

Q: Clearly explain why some risks are systematic and others non-systematic. How is it possible for an…

A: There are various types of risks that are faced by organizations in order to conduct its day to day…

Q: Explain the difference between systematic and unsystematic risk. Also explain why one of these types…

A: Financial markets are full of financial risks because these markets are related to the trade of…

Q: Which of the following risks can be eliminated through diversification? a. Systematic risk b.…

A: Idiosyncratic risk is a risk for a particular investment or company. It is also called unsystematic…

Q: Market risk cannot be eliminated. OA. True OB. False

A: The financial market can be defined as the market place which includes the trading of securities and…

Q: Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, nd then…

A: In broad terms, some risks are diversifiable because they are specific to individual assets or…

Q: Question Details Unsystematic risk is also known as unique risk. asset-specific risk. diversifiable…

A: The objective of the question is to identify the different names by which unsystematic risk is known…

Q: Hedging is matching the maturities of assets and liabilities to reduce risk.Hedging is matching the…

A: Given StatementHedging matches the maturities of assets and liabilities to reduce risk.What is…

Q: The desired rate of return on an investment should reflect the degree of risk involved. A. True…

A: Riskier investments may give higher returns to the investors as they provide favorable ratio of risk…

Q: 1. In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it…

A: Unsystematic risk is a risk that is distinctive to a particular firm or industry. Nonsystematic risk…

Q: The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for…

A: Introduction : In simple words, capital asset pricing model or CAPM can be understood as a valuation…

Q: sk is the potential for an investment to generate more than one return. A security that will produce…

A: While investment there are potential risk to the investment due to which return realized vary…

Q: Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific…

A: Answer 1. Market risk is referred to as? Market Risk: When an investor might lose money because of…

Q: According to the CAPM, which of the following risks is irrelevant? Select one: a. Unsystematic…

A: CAPM stands for Capital Asset Pricing Model. This theoretical model shows the relationship between…

Q: Another name for systematic risk is: Unique risk None of these are correct Diversifiable risk…

A: Systematic risks are related to risk of overall market risk and these are related to whole market…

Q: Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific…

A: Market risk is the type of risk that affects the whole market. Market risk is not specific to a…

Q: Investors do not get compensated for holding on to diversifiable risk. True False

A: Risk which are particularly to some companies and can be eliminated or reduced by investing in other…

Q: How can an investor eliminate Unsystematic Risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk. Systematic risk is non…

Q: Market risk ________. a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Q: What is meant by the phrase natural hedging againstexchange rate risk?

A: Hedging is a mechanism that is used to eliminate or minimize the risk of loss that is associated…

Q: The systematic risk principle states that the expected return on a risky asset depends only on which…

A: Systematic risk is the risk which is experienced by all the firms in an industry and it is…

Q: Risks that are insurable because their probabilities can be calculated precisely enough for the risk…

A: An insurable risk, that might comprise possibility of loss that is unexpected and outside the…

Q: Explain what is meant Market Risk and by Specific risk. How can an investor reduce these risks?

A: Risk is referred to as the chance that an outcome or an investment's actual gains will differ from…

Q: broad terms, why are some risks diversifiable? Why are some risks non- diversifiable? Does it follow…

A: What is a diversifiable risk? Diversifiable risk(unsystematic risk) is a risk associated with a…

Q: Market risk is portion of a security's stand-alone risk that cannot be eliminated through…

A: Market risk is portion of a security's stand-alone risk is also called as systematic risk.It can not…

Q: When adding a risky asset to a portfolio of may risky assets, which property of the asset has a…

A: Portfolios can consist of a variety of investments such as equities, bonds, commodities, cash and…

Q: Systematic risk is defined as: a risk that specifically affects an asset or small group of assets.…

A: Systematic risk refers to the uncontrollable risk produces by external factors that are not in the…

Q: The distinction between “pure risk” and “speculative risk” is important because only pure risks are…

A: “Fundamental risks” are those risks which affect a large segment of companies. But the risks which…

Q: Which one of the following statements is correct concerning unsystematic risk? An investor is…

A: In finance there are two main types of risk – systematic risk and unsystematic risk. Systematic…

Q: An investment with a high return is likely to be high risk A. True B. False

A: When you invest money in the market there is going to be risk in the market but degree of risk and…

Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

Systematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True False

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Checking the statement

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The systematic risk principle states that the expected return on a risky asset depends only on which one of the following? Unsystematic risk Market risk Diversifiable risk
Risks that are insurable because their probabilities can be calculated precisely enough for the risk to be quantified. a) Speculative b) Explicit c) Measured d) Pure
Which one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O
The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?
Any risk involved a situation where there is a possibility of gain refers to: a. Liability risk b. Speculative risk c. Pure risk d. Personal risk
Market risk is portion of a security's stand-alone risk that cannot be eliminated through diversification. True False
Explain the difference between systematic and unsystematic risk. Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.
According to the CAPM, which of the following risks is irrelevant? Select one: a. Unsystematic risk b. Systematic risk c. All risks are always relevant d. Market risk
Another name for systematic risk is: Unique risk None of these are correct Diversifiable risk Firm-specific riski
c) Explain what is meant Market Risk and by Specific risk. How can an investor reducethese risks?
Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment’s possible returns, occurs when there is uncertainty about an investment’s future outcome, such as the return expected to be generated by the investment and realized by an investor. You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Stand-alone risk Portfolio risk Generally, investors would prefer to invest in assets that have: a high level of risk and low expected returns. a low level of risk and high expected returns.
Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific risk. Standard deviation and beta both measure risk, but they are different in that beta measures both systematic and unsystematic risk. beta measures only systematic risk while standard deviation is a measure of total risk. beta measures only unsystematic risk while standard deviation is a measure of total risk. beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk. beta measures total risk while standard deviation measures only nonsystematic risk. Buying common stock is riskier than buying a U.S Treasury bill. state reason in 'other' true False Other: Which one of the following statements is an example of unsystematic risk? The number of vehicles sold by a major manufacturer was less than anticipated. GDP was 0.5 percent lower than expected. The inflation rate increased by 5 percent. The value of the dollar declined against…