Systematic risk is rewarded with a premium in the market because:
A)it is associated with market movements which cannot be eliminated through diversification
B)it is a microeconomic risk
C)that risk is unique to a firm or an industry
D)none of the above

Question

Quizplus · Accepted Answer

Systematic risk, also known as market risk, affects the overall market and cannot be diversified away. This risk is associated with macroeconomic factors such as interest rates, inflation, and political events. Therefore, investors expect a premium for bearing this risk as they cannot avoid it through diversification. Options B and C are incorrect as they do not accurately describe systematic risk.

Systematic Risk Is Rewarded with a Premium in the Market