Question

Which one of the following represents the amount of compensation an investor should expect to receive for accepting the unsystematic firm-specific risk associated with an individual security?A. Security beta multiplied by the market rate of returnB. Market risk premiumC. Risk-free rate of returnD. Zero

Answer 1

Answer:

The correct answer is letter "D": Zero.

Explanation:

While dealing with an asset out of an unsystematic firm-specific risk there is no compensation to expect from a firm since it is the individual who is taking the risk in trading that asset. All responsibility relies on the individual's strategy when placing a transaction but the firm does not have any responsibility for having the individual accept that security.