Which of the following is the relevant risk of an investment, for which investors should be rewarded?
A)Firm-specific risk
B)Total risk
C)Systematic risk
D)Unsystematic risk
E)Diversifiable risk

Question

Quizplus · Accepted Answer

Systematic risk represents the overall market risk that is common to all investments, which cannot be diversified away. This is considered the relevant risk for which investors deserve a reward, as it is beyond their control and potentially can affect all their investments. Firm-specific risk, unsystematic risk and diversifiable risk can be diversified away and are not considered relevant risks. Total risk combines both systematic and unsystematic risks.

Which of the Following Is the Relevant Risk of an Investment