Question

What is common risk a. risk which is linked across assets b. Risk that is not...

What is common risk

a. risk which is linked across assets

b. Risk that is not linked across assets

c. Risk that can be diversified away

d. unsystematic risk

e. None of these

Homework Answers

Answer #1

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Common risk/systematic risk:

1. Risk linked across all the assets.

2. Cannot be killed by diversification.

For Example:

1. Interest rate, Inflation fluctuation risk.

Non-Common risk/unsystematic risk:

1. Risk not linked across all the assets.

2. Can be killed by diversification.

3. Its asset Specific.

Ex:

1. Losses caused by fire breakout.

2. Losses caused by huge R&D failure.

Answer: a. risk which is linked across assets.

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