The amount of risk premium allocated to Security A is dependent upon which one of the following?
A)unsystematic risk associated only with Security A
B)total risk associated with Security A's classification
C)total surprise associated with Security A
D)the difference between the expected return and the actual return on Security A
E)systematic risk associated with Security A

Question

Quizplus · Accepted Answer

The risk premium is the additional return required by an investor to compensate for the additional risk they are taking on. Systematic risk is the risk that affects the entire market or a particular segment of the market, and cannot be diversified away by adding more securities to a portfolio. Therefore, the risk premium allocated to Security A will be influenced by the systematic risk associated with Security A.

The Amount of Risk Premium Allocated to Security a Is