Which of the following statements about the various kinds of risks is correct?
A)Economic risk is a market risk, hence it should not be rewarded by the market.
B)A firm's default risk is a diversifiable risk, hence it should be rewarded by the market.
C)Exchange rate risk is a diversifiable risk, hence it should not be rewarded by the market.
D)Inflation risk is an unsystematic risk, hence it should not be rewarded by the market.
E)Interest rate risk is a systematic risk, hence it should be rewarded by the market.

Question

Quizplus · Accepted Answer

Interest rate risk is considered a systematic risk because it affects all investments across the board. Systematic risks are inherent to the entire market or market segment, meaning they cannot be eliminated through diversification. Therefore, investors expect to be compensated for taking on such risks, which is why the market rewards them.

Which of the Following Statements About the Various Kinds of Risks