Question

Define systemstic and unsystematic risk. What method is used to measure a single asset risk?

Define systemstic and unsystematic risk. What method is used to measure a single asset risk?

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Answer #1

Systematic risk is risk associated with firm specific or industry basis so this is a risk which is specific in nature and this can be controlled by the company because this is within the control of the company and this risk can also be diversified

unsystematic risk are market risk with can never be diversified by the investors and these risks are not in the control of the company because these risks are related to macro environment like inflation and changes in the interest rates.

Capital Asset pricing model can be used when we will calculate the beta associated with the risk of a single asset or we can also use the standard deviation in order to calculate the risk associated with a single asset.

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