Why do stock market investors appear not to be concerned with unique risks when calculating expected rates of return?
A)there is no method to quantify unique risks.
B)unique risks are assumed to be diversified away.
C)unique risks are compensated by the risk-free rate.
D)Beta includes a component to compensate unique risk.

Question

Quizplus · Accepted Answer

Stock market investors believe that unique risks are diversified away through a properly diversified portfolio, and therefore do not impact the expected rates of return significantly.

Why Do Stock Market Investors Appear Not to Be Concerned