Why would a stock market investor not be concerned with unique risks when calculating expected rates of return?
A)There is no method to quantify unique risks.
B)Unique risks are assumed to be diversified away.
C)Unique risks are compensated by the risk-free rate.
D)Beta includes a component to compensate unique risk.

Question

Quizplus · Accepted Answer

When calculating expected rates of return, stock market investors assume that unique risks will be diversified away. This means that the risks associated with individual securities will be offset by the risks associated with other securities in the portfolio, resulting in a lower overall level of risk. As a result, it is not necessary for investors to factor in unique risks when calculating expected returns.

Why Would a Stock Market Investor Not Be Concerned with Unique