The amount of compensation an investor should expect to receive for accepting the unsystematic risk associated with a security is equal to: a

Finance Dec 26, 2020

The amount of compensation an investor should expect to receive for accepting the unsystematic risk associated with a security is equal to:

a. zero.
b. the beta of the firm multiplied by the market risk premium.
c. the risk-free rate of return.
d. the market risk premium.

Expert Solution

Unsystematic risk is the firm-specific or industry-specific risk. You will not be compensated for risk that can be diversified. By increasing the number of stocksin the portfolio, you can eliminate unsystematic risk. Hence, the correct answer is-

a. Zero

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