The expected return on a risky asset depends only on that asset’s systematic risk.

Expert Solution

The expected return on a risky asset depends only on that asset’s systematic risk..

The given Statement is wrong. The correct statement is that The expected return on a risky asset depends only on Market risk.

As per The Systematic Risk Priniciple ,only Systematic risk can affect the expected return of a well diversified portfolio.Unsystematic Risk are considered to be ir-relevant because the process of diversification eliminates the risk.

The various sources of Systematic Risk can be Macro economic factors such as Changes in Interest Rate, Fluctuation in Currencies ,Inflation, Recession etc

Macro factors which can influence the volatility of the entire market is Systematic Risk and it cannot be controlled by an Indiviual company.

Systematic risk can be of three types which are discussed below:

1)Market Risk	It is associated with the fluctuations in the market
2)Interest Rate risk	Associated with the increase and decrease in the interest rate
3)Inflationary risk	Excess of Demand over Supply

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ekkarill92 answered 2 years ago

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The expected return on a risky asset depends only on that asset’s systematic risk.

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