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Questions
Single choice
Ms Brown is reviewing her investment portfolio of Australian shares with her advisor. Which of the following statements best explains why investors are typically not compensated for taking on unsystematic risk?
Options
A.a. Unsystematic risk can be reduced through diversification, so investors are not compensated for bearing it.
B.b. Unsystematic risk is difficult to measure, so markets tend to ignore it in pricing.
C.c. Unsystematic risk only applies to property and fixed income investments, not shares.
D.d. Unsystematic risk is driven by macroeconomic events, which affect all assets equally.
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Standard Answer
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Approach Analysis
Question restated: Ms Brown and her advisor are evaluating why investors are typically not compensated for taking on unsystematic risk when investing in Australian shares.
Option a: 'Unsystematic risk can be reduced through diversification, so investors are not compensated for bearing it.' This matches core capital market theory: unsystematic (idiosyncratic) risk arises from factors specif......Login to view full explanationLog in for full answers
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