Question

A company faces two kinds of risk. An example of a firm-specific risk is the risk that a competitor might enter its market and take some of its customers. An example of a market risk is the risk that the economy might enter a recession, reducing sales. True or False: The company's shareholders would more likely demand a higher return due to the stock's firm-specific risk because it affects only that particular stock.

Answer 1

Answer:

true

FALSE

Explanation:

Systemic risk are risk that are inherent in the economy. They cannot be diversified away. They are also known as market risk. examples of this risk include recession, inflation, and high interest rates. Investors should seek compensation for systemic risk. Systemic risk is measured by beta. The higher beta is, the higher the systemic risk and the higher the compensation demanded for by investors

Non systemic risk are risks that can be diversified away. they are also called company specific risk. Examples of this type of risk is a manager engaging in fraudulent activities.