This topic contains a solution. Click here to go to the answer

Author Question: Define the terms systematic risk and unsystematic risk. Be sure to explain the difference between ... (Read 144 times)

Sportsfan2111

  • Hero Member
  • *****
  • Posts: 585
Define the terms systematic risk and unsystematic risk. Be sure to explain the difference between the two. Which type of risk can be diversified away? How do we measure the remaining type of risk?
 
  Evaluate the statement: If we could just make our investment portfolio large enough, we could completely eliminate risk and earn a market portfolio rate of return with the risk of a risk-free investment.
  What will be an ideal response?

Question 2

When considering expected returns, the states of the world must sum to 1 (or 100).
 
  Indicate whether the statement is true or false.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

ong527

  • Sr. Member
  • ****
  • Posts: 285
Answer to Question 1

Answer: Systematic risk is risk that cannot be diversified away, is measured with beta, and is the risk that impacts all stocks in an economy. On the other hand, unsystematic or diversifiable risk CAN be diversified away. This is risk that is unique to the asset and can be eliminated when combined in a portfolio of risky assets. As for our statement, we CANNOT totally eliminate uncertainty of returns just by increasing the number of risky assets that make up the portfolio: although we can eliminate unnecessary or unsystematic risk, we cannot eliminate systematic risk through diversification. Therefore, we cannot realize a risk-free investment with greater than risk-free returns.

Answer to Question 2

Answer: TRUE




Sportsfan2111

  • Member
  • Posts: 585
Reply 2 on: Jul 10, 2018
:D TYSM


at

  • Member
  • Posts: 359
Reply 3 on: Yesterday
Gracias!

 

Did you know?

It is widely believed that giving a daily oral dose of aspirin to heart attack patients improves their chances of survival because the aspirin blocks the formation of new blood clots.

Did you know?

As many as 28% of hospitalized patients requiring mechanical ventilators to help them breathe (for more than 48 hours) will develop ventilator-associated pneumonia. Current therapy involves intravenous antibiotics, but new antibiotics that can be inhaled (and more directly treat the infection) are being developed.

Did you know?

Each year in the United States, there are approximately six million pregnancies. This means that at any one time, about 4% of women in the United States are pregnant.

Did you know?

Historic treatments for rheumatoid arthritis have included gold salts, acupuncture, a diet consisting of apples or rhubarb, nutmeg, nettles, bee venom, bracelets made of copper, prayer, rest, tooth extractions, fasting, honey, vitamins, insulin, snow collected on Christmas, magnets, and electric convulsion therapy.

Did you know?

There are more sensory neurons in the tongue than in any other part of the body.

For a complete list of videos, visit our video library