Question

The risk premium of a security is determined by its ________ risk and does not depend on its

________ risk.
A) systematic, undiversifiable
B) systematic, unsystematic
C) undiversifiable, diversifiable
D) diversifiable, undiversifiable

Answer 1

Answer: (B) Systematic, Unsystematic

Step-by-step explanation:

The systematic risk is one of the type of investment and it is measured by investment return covariance in the market. The systematic risk is basically divided by market risk once it is calculated.

The premium risk of the security is mainly determine by the systematic risk and it is not depend upon its unsystematic risk.

The unsystematic risks is basically inherited from the specific industry and the risk can be reduced by the diversification.

Therefore, Option (B) is correct.