Question

Question 4 1 pts Which of the following statement is correct about systematic risk and non-systematic risk? Financial markets reward you for bearing systematic risk. A stock's systematic risk is measured by the standard deviation of its return. Systematic risk can be eliminated by proper diversification. Fluctuation in oil price is a non-systematic risk. Previous Next

Answer 1

Systematic risk is the amount of risk associated with entire market and these are undiversified risk. Only non systematic risk can be eliminated by proper diversification. Total risk can be measured by standard deviation of portfolio return.

Answere - Option (A)] Bearin Bearing systematic gresk will represent the amount of systematic risk involved in specific poret Folio ore casset. The expected returen on a risky asset és burely depends on its systematic risk. Precinciple of systematic resk states that rewards for bearing od skº only depends on that asset's systematic ro'sk. so, Option cay is treue · Stock's systematic risk can only be measured by beta. If betavalue is equal to 1, then asset has same systematic risk as the market contains. When beta > I, asset con tue'ns more systematic risk and rece - versa. So, option (B) is wrong. only unsystematic resk can be eliminated by bropere diversification. In the's scenario many dzinerseteed assets can be spread to metegale the market re's k , particularly when retiren i's less than bere fectly correlåred. Total ro'sk és measured by standard deviation of return. Thus, Optron CC) ºe's not correct. fluctuation in oil price will comes undere systematic resk. Because increase én Oil breces wile leads to highere probability of bear market. systemate'Desk associated with Oil poeče's capital Market. 07'l prece, exchange date and systematic ro'sks are correlated with each Othere. 50, Option (d) also wrong. Hence, from the above analyses we have concluded that financial Market rewards fore systematic risk. Option CA) is the suitable answere. a