Question

In: Finance

Which of the following statement is correct about risk? A. Financial markets reward you for bearing...

Which of the following statement is correct about risk?

A. Financial markets reward you for bearing systematic risk.

B. Fluctuation in oil price is an unsystematic risk.

C. Systematic risk can be eliminated by proper diversification.

D. As you invest more in Coca Cola stocks, your return will increase due to higher risk.

Solutions

Expert Solution

Option A is correct

Financial markets reward you for bearing systematic risk.

Higher return is expected to be generated by bearing higher risk, but this is true only for systematic risk, as per CAPM model,

Financial markets do not reward for bearing unsystematic risk.

jeff jeffy answered 2 years ago
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