Systematic and unsystematic risk

1. If you randomly select 10 stocks for a portfolio and 20 other stocks for a different portfolio, which portfolio is likely to have the lower standard deviation? Why?

2. Why doesn’t the risk premium of a stock depend on its diversifiable risk?

3. Your spouse works for Southwest Airlines and you work for a grocery store. Is your company or your spouse’s company likely to be more exposed to systematic risk?

1. What is the difference between systematic and unsystematic risk?

2. There are three companies working on a new approach to customer-tracking software. You work for a software company that thinks this could be a good addition to its software line. If you invest in one of them versus all three of them,

a. Is your systematic risk likely to be very different?

b. Is your unsystematic risk likely to be very different?


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