A bond's expected return should be related to its
A) unique risk.
B) total company assets.
C) systematic risk.
D) unsystematic risk.

Question

Quizplus · Accepted Answer

A bond's expected return should be related to its systematic risk, which is the risk that cannot be diversified away by holding a portfolio of different assets. The higher the systematic risk, the higher the expected return should be to compensate investors for the risk they are taking on. Unique risk (A) and unsystematic risk (D) are both types of risk that can be diversified away by holding a portfolio of different assets, and therefore should not be the primary determinant of a bond's expected return. Total company assets (B) are not directly related to a bond's expected return.

A Bond's Expected Return Should Be Related to Its