Which one of these statements is correct concerning expected and unexpected returns?
A) Total return is equal to the expected return.
B) The unexpected return is solely related to unsystematic risk.
C) The unexpected return is solely related to systematic risk.
D) The unsystematic portion of the surprise component of a return is diversiﬁable risk.
E) Total return is equal to the expected return minus the surprise.

Question

Quizplus · Accepted Answer

The unsystematic portion of the surprise component of a return is diversiﬁable risk, which means that it can be eliminated through proper diversification. The other options are incorrect because total return is not necessarily equal to expected return (as it includes unexpected return), the unexpected return can be related to both systematic and unsystematic risk, and total return is not equal to expected return minus the surprise (as the surprise can be positive or negative).

Which One of These Statements Is Correct Concerning Expected and Unexpected