Which one of these statements is correct concerning expected and unexpected returns?
A) Total return is equal to the expected return.
B) The unexpected return is solely related to unsystematic risk.
C) The unexpected return is solely related to systematic risk.
D) The unsystematic portion of the surprise component of a return is diversifiable risk.
E) Total return is equal to the expected return minus the surprise.

Question

Quizplus · Accepted Answer

The unsystematic portion of the surprise component of a return, also known as idiosyncratic or specific risk, is indeed diversifiable. This means that through diversification, such as investing in a wide range of assets, the impact of this risk on a portfolio can be reduced or eliminated.

Which One of These Statements Is Correct Concerning Expected and Unexpected