FIN - Chapter 11
Unsystematic Risk
Also known as: "Specific Risk" / "diversifiable risk" / "residual risk"
Systematic Risk
Consists of the day-to-day fluctuations in a stock's price
- If you hold just ( 1 ) investment and it performs badly, you could lose all of your money - If you hold a diversified portfolio with a variety of different investments, it is much less likely that ALL of your investments will perform badly at the same time
Explain how diversification changes the total risk of a portfolio?
*UN*-diversifiable risk
Systematic Risk is also known as "market risk" / "*(*undiversifiable / diversifiable*)*" risk
Unsystematic Risk
The type of uncertainty that comes with the company or industry you invest in
Systematic Risk
The uncertainty inherent to the entire market or entire market segment
Diversification
Unsystematic Risk can be reduced through __________
Systematic Risk deserves a risk premium
Which type(s) of risk deserves a *risk premium*?
Unsystematic Risk is diversifiable
Which type(s) of risk is/are *diversifiable*? - Unsystematic risk - Systematic risk