The systematic risk principle states that the expected return on a risky asset depends only on which one of the following?
A)Unique risk
B)Diversifiable risk
C)Asset-specific risk
D)Market risk
E)Unsystematic risk

Question

Quizplus · Accepted Answer

According to the systematic risk principle, the expected return on a risky asset depends only on market risk, or systematic risk, which is the risk that cannot be diversified away. Therefore, the best choice is D - Market risk. The other choices listed, such as unique risk, diversifiable risk, asset-specific risk, and unsystematic risk, are all forms of idiosyncratic risk that can be eliminated through diversification.

The Systematic Risk Principle States That the Expected Return on a Risky