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 level of systematic risk affects the expected rate of return of a security. Systematic risk refers to the risk that cannot be diversified away, meaning it is inherent in the overall market rather than specific to the individual security. As such, investors expect to be compensated for taking on this risk in the form of a higher expected rate of return. So, as the level of systematic risk in a security increases, the expected rate of return also increases. The other options listed (A, B, D, E) are all measures of the total risk of a security, which includes both systematic and unsystematic risk. While the level of systematic risk can indirectly impact these measures, it is not the most direct factor affecting them.

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