Explanation:
According to the Capital Asset Pricing Model (CAPM), an investor is only compensated for bearing systematic risk (also known as market or non-diversifiable risk) because it cannot be eliminated through diversification. Unsystematic risk (which is synonymous with asset-specific, idiosyncratic, or diversifiable risk) can be eliminated by diversifying a portfolio, and therefore investors are not compensated for bearing it.
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Q.68 According to the Capital Asset Pricing Model (CAPM), which of the following risks should an investor be compensated for?
I. Unsystematic risk
II. Asset-specific risk
III. Systematic risk
A
I only
B
III only
C
I and II only
D
I and III only