Systematic risk is important because:
A) the expected return of an asset depends on its systematic risk.
B) systematic risk is essentially eliminated in a portfolio.
C) measuring systematic risk allows us to price stocks.
D) systematic risk allows for risk to be diversified away.
E) systematic risk is linearly related to the standard deviation of an asset.

Question

Quizplus · Accepted Answer

Systematic risk, also known as market risk, is the risk associated with the overall market or economy and affects all assets to some degree. The expected return of an asset is dependent on its systematic risk, meaning that investors need to consider systematic risk when making investment decisions. Assets with high systematic risk will generally have higher expected returns, while assets with lower systematic risk will have lower expected returns.

Systematic Risk Is Important Because