The difference between systematic risk and unsystematic risk. Introduction: Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible. Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding. Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

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Answer 1

Question

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?

Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference

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Answer 2

Question

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

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Answer 3

Question

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

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Answer 4

Question

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

Answer 6

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

Answer 7

Chapter 12, Problem 1CQ

Summary Introduction

To determine: The difference between systematic risk and unsystematic risk.

Introduction:

Systematic risk is essential for the complete market or segment. It is otherwise called market risk or undiversifiable risk that has an overall impact. This risk is unavoidable and not predictable. Here, hedging and appropriate strategy of asset allocation works out. While, mitigation with diversification is not possible.

Systematic risk states how one investment supports to the total aggregate risk of business’s financial funding.

Unsystematic risk is otherwise called the diversifiable, residual, non-systematic or specific risk. The proportion of a corporation’s total or aggregate risk which can be reduced through diversified asset portfolio.

Answer 8

Expert Solution & Answer

Explanation of Solution

The following are the differences between systematic risk and unsystematic risk:

Systematic risks are type of risks that cannot be differentiated through the construction of a portfolio.
Normally, systematic risk factors influence a substantial number of firms in the market, though those elements will not really influence all organizations similarly.
Unsystematic risk can be diversified or reduced through portfolio development.
Unsystematic risk issues are particular to the firm or industry.
While, some components impact the profitability of an industry/firm; it does not in another firm/industry. However, it can be applicable for different firms in same industry.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

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