Which type of risk can be diversified away? Systematic risk. Market risk. Inflation risk. Idiosyncratic risk....

Which type of risk can be diversified away? Systematic risk. Market risk. Inflation risk. Idiosyncratic risk. More than one of the these types of risk can be diversified away.

Solutions

Expert Solution

Which type of risk can be diversified away?

Ans: Idiosyncratic risk

Other risk like systematic risk, market risk and inflation risk can't be diversified whereas Idiosyncratic risk can be diversified, Idiosyncratic risk is also known as unsystematic risk.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Which of the following is true? A. A stock’s systematic risk can be diversified away by...

Which of the following is true? A. A stock’s systematic risk can be diversified away by adding it to a portfolio. B. Investors should not be compensated for bearing nondiversifiable risk. C. Beta is a measure of the nonsystematic risk of an asset. D. None of the answers are correct.

Which type of risk that is associated with investments can be diversified away under the right...

Which type of risk that is associated with investments can be diversified away under the right conditions?

6.a) What is the difference between systemic risk and idiosyncratic risk? Which type of risk can...

6.a) What is the difference between systemic risk and idiosyncratic risk? Which type of risk can be almost eliminated through diversification? Who will be able to mitigate the risk and how? What is “moral hazard” and ‘adverse selection”? What are the cause and remedies of the financial crisis in 2008-09?

Diversification eliminates idiosyncratic (unique or firm-specific) risk but does not eliminate systematic risk. Evaluate this statement....

Diversification eliminates idiosyncratic (unique or firm-specific) risk but does not eliminate systematic risk. Evaluate this statement. What happens to the benefits of diversification as portfolios get larger? Why do you think there are changes to the benefits of diversification as portfolios get larger?

Risk can be subdivided into systematic and unsystematic risk. Describe each type of risk, the related...

Risk can be subdivided into systematic and unsystematic risk. Describe each type of risk, the related compensation for bearing that risk, and give some examples of each type.

In most cases, diversification can reduce or eliminate this type of risk. A. systematic risk. B....

In most cases, diversification can reduce or eliminate this type of risk. A. systematic risk. B. nonsystematic. C. macro risk D. all risk.

Suppose that the market can be described by the following threesources of systematic risk with...

Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.FactorRisk PremiumIndustrial production (I)8%Interest rates (R)4%Consumer confidence (C)7%The return on a particular stock is generated according to the following equation:r = 17% + 0.9I + 0.5R + 0.70C +ea-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 3%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)a-2. Is the stock over-...

Which of the following statements is false? Systematic risk is a market-wide source of risk and...

Which of the following statements is false? Systematic risk is a market-wide source of risk and is non-diversifiable. The beta estimate of the market portfolio is one. The yield to maturity is less than the coupon rate of a premium bond. Assuming no IRR problems, if IRR > cost of capital, the NPV estimate is negative. The reinvestment rate of the MIRR is the cost of capital.

Suppose that the market can be described by the following three sources of systematic risk with...

Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 9 % Interest rates (R) 5 % Consumer confidence (C) 7 % The return on a particular stock is generated according to the following equation: r = 11% + 1.0I + 0.4R + 0.70C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 9%. (Do...

Discuss the difference between a stock’s systematic (market) risk and non-systematic (unique) risk?

Subjects