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CORPORATE FINANCE STATEMENT: If the total risk of a stock is high you can expect the...

CORPORATE FINANCE

STATEMENT: If the total risk of a stock is high you can expect the systematic risk to be high.

True or False? Why?

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Answer #1

False because Total risk of a stock is the sum of systematic and unsystematic risk. High total risk could also be due to high unsystematic risk. If stocks are not diversified well then there will be high unystematic risk. So total risk could be high even at low systematic risk.In some cases systematic risk could be high but it is not the only factor,

Total Risk = Systematic Risk + Unsystematic Risk

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