Which one of the following statements is correct concerning unsystematic risk?
A) An investor is rewarded for assuming unsystematic risk.
B) Eliminating unsystematic risk is the responsibility of the individual investor.
C) Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk.
D) Beta measures the level of unsystematic risk inherent in an individual security.
E) Standard deviation is a measure of unsystematic risk.

Question

Quizplus · Accepted Answer

Unsystematic risk is the risk that is specific to an individual company or asset and can be reduced through diversification. It is the responsibility of the individual investor to eliminate unsystematic risk through diversification. A is incorrect because investors are not rewarded for taking on unsystematic risk as it can be easily diversified away. C is incorrect as there is no reward for taking on more unsystematic risk. D is incorrect as beta measures systematic risk, not unsystematic risk. E is also incorrect as standard deviation measures total risk, which includes both systematic and unsystematic risk.

Which One of the Following Statements Is Correct Concerning Unsystematic