Which one of the following is most directly affected by the level of systematic risk in a security?
A) Variance of the returns
B) Standard deviation of the returns
C) Expected rate of return
D) Risk-free rate
E) Market risk premium

Question

Quizplus · Accepted Answer

The systematic risk in a security affects the expected rate of return. This is because systematic risk is the risk inherent to the entire market or market segment, whereas unsystematic risk can be diversified away. Therefore, the higher the level of systematic risk in a security, the higher the expected rate of return required by investors to hold that security. Options A and B (Variance and Standard deviation of returns) are measures of the overall riskiness of a security, while options D and E (risk-free rate and market risk premium) are not directly affected by the level of systematic risk in a security.

Which One of the Following Is Most Directly Affected by the Level