Question

26 The systematic risk principle implies that the expected return on an asset depends only on that asset’s:

unsystematic risk

systematic risk

credit risk

interest rate risk

Answer 1

Systematic risk, also known as "market risk" or "un-diversifiable risk", is the uncertainty inherent to the entire market or entire market segment. Also, referred to as volatility, systematic risk consists of the day-to-day fluctuations in a stock's price. Beta coefficient is measure of systematic risk.

The systematic risk principle implies that the expected return on an asset depends only on that asset’s systematic risk that is beta.

Option (B) is correct answer.