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It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. This is the risk other than systematic risk and which is due to the factors which are controllable by the people working in market and market risk premium is used to compensate this type of risk.
Total Risk = Systematic risk + Unsystematic Risk
What else can I help you with?
Why there no reason to believe that the market will reward investor with additional return for assuming unsystematic risk?
There is no reason to believe that the market will reward investors for assuming unsystematic risk because this type of risk is specific to individual assets and can be diversified away. As investors build diversified portfolios, the unique risks associated with individual securities diminish, leading to the conclusion that only systematic risk, which affects the entire market, is compensated through higher expected returns. Therefore, the market does not provide an additional return for bearing risks that can be eliminated through diversification.
How many types of risks in finance?
There is Micro risk and Macro risk Under Micro risk 1. Systematic risk 2.Unsystematic risk Under macro risk 1.Finance Risk 2.Market Risk 3.Credit Risk 4.Country Risk. 5.Cash Risk
Can the risk of a portfolio be reduced to zero by increasing the number of stocks in the portfolio?
No, the risk of a portfolio cannot be reduced to zero by simply increasing the number of stocks. While diversification can lower unsystematic risk (the risk specific to individual stocks), it cannot eliminate systematic risk, which affects all stocks due to market-wide factors. Therefore, while adding more stocks can help mitigate some risks, it does not completely eliminate them.
How do the investment options compare to each other in terms of potential returns and risks?
Investment options vary in potential returns and risks. Generally, higher potential returns come with higher risks. Stocks typically offer higher returns but also higher risks compared to bonds, which offer lower returns but lower risks. It's important to consider your risk tolerance and investment goals when choosing between different options.
What processes and procedures are used to identify the rate and level of risk in a workshop?
To identify the rate and level of risk in a workshop, a systematic risk assessment process is typically employed. This involves identifying potential hazards, evaluating the likelihood and severity of associated risks, and prioritizing them based on their impact. Procedures may include site inspections, employee feedback, and the use of risk assessment tools or matrices. Regular reviews and updates ensure that emerging risks are addressed promptly.
Distingush between systematic and unsystematic risks which is often regarded as the only relevant risk and why?
It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. This is the risk other than systematic risk and which is due to the factors which are controllable by the people working in market and market risk premium is used to compensate this type of risk. Total Risk = Systematic risk + Unsystematic Risk As systematic risk is beyond the control of people working in market that;s why it is defenately not the relevent risk because anything not controllable is irrelevant and that's why unsystematic risk is the relevant risk because it is in the control of investor to in which security to invest or not.
What is unsystematic return?
Unsystematic return refers to the portion of an investment's return that is specific to a particular asset or company and is not attributable to market-wide movements. It includes factors such as management decisions, product success, or competitive positioning, which can affect an individual stock's performance independently of market trends. Unlike systematic return, which is influenced by overall market conditions, unsystematic return can be mitigated through diversification, as the unique risks associated with individual assets can offset each other.
Can Systematic risk can be eliminated by diversification?
No, systematic risk cannot be eliminated by diversification. Systematic risk, also known as market risk, affects all securities and is tied to factors like economic changes, interest rates, and geopolitical events. While diversification can reduce unsystematic risk (specific to individual assets), it cannot mitigate the inherent risks that impact the entire market. Investors can, however, manage systematic risk through strategies like asset allocation and hedging.
Why there no reason to believe that the market will reward investor with additional return for assuming unsystematic risk?
There is no reason to believe that the market will reward investors for assuming unsystematic risk because this type of risk is specific to individual assets and can be diversified away. As investors build diversified portfolios, the unique risks associated with individual securities diminish, leading to the conclusion that only systematic risk, which affects the entire market, is compensated through higher expected returns. Therefore, the market does not provide an additional return for bearing risks that can be eliminated through diversification.
How many types of risks in finance?
There is Micro risk and Macro risk Under Micro risk 1. Systematic risk 2.Unsystematic risk Under macro risk 1.Finance Risk 2.Market Risk 3.Credit Risk 4.Country Risk. 5.Cash Risk
Risk that affects a single company is called risk?
Risk that effects a single company is called unsystematic risk. This type of risk may be diversified away by incorporating non-correlating assets into a portfolio. Unsystematic risk differs from systemic risk, which are risks that effect all companies regardless of their industry or sector and cannot be diversified away.
Can the risk of a portfolio be reduced to zero by increasing the number of stocks in the portfolio?
No, the risk of a portfolio cannot be reduced to zero by simply increasing the number of stocks. While diversification can lower unsystematic risk (the risk specific to individual stocks), it cannot eliminate systematic risk, which affects all stocks due to market-wide factors. Therefore, while adding more stocks can help mitigate some risks, it does not completely eliminate them.
Is OPSEC systematic?
Yes, OPSEC (Operational Security) is systematic as it involves a structured approach to identifying and protecting sensitive information that could be exploited by adversaries. It typically includes five steps: identifying critical information, analyzing threats, assessing vulnerabilities, determining risks, and implementing measures to mitigate those risks. This systematic process ensures that organizations can effectively safeguard their operations and maintain confidentiality.
What are some of the different market risks?
There are many different market risks. Some different market risks are systematic risk, credit risk, country risk, political risk, market risk, interest rate risk and many more.
Why is the distinction between insurable and uninsurable risks significant for the theory of profit?
why is the distinction between insurable and uninsurable risks is significant for the theory of profit
What is an open dump?
An open dump is a site where trash is disposed of in an unsystematic and uncontrolled manner, often without environmental protections or regulations in place. It can pose serious health and environmental risks due to contamination of soil, air, and water sources.
What is the difference between customers and stakeholder?
Stakeholders bear risks of the organisation whereas customers do not bear risks.
