The risk premium of a security is determined by its ________ risk and does not depend on its ________ risk.
A)systematic,undiversifiable
B)systematic,unsystematic
C)diversifiable,diversifiable
D)diversifiable,unsystematic
E)unsystematic,diversifiable

Question

Quizplus · Accepted Answer

The risk premium of a security is determined by its systematic risk, which is the risk that is inherent in the overall market or economy, and not by its unsystematic risk, which is the risk that can be eliminated through diversification. Therefore, choice B is the correct answer as it correctly identifies the two types of risk and their relationship to the risk premium.

The Risk Premium of a Security Is Determined by Its