Why Would a Stock Market Investor Not Be Concerned with Unique

question 58

Multiple Choice

Why would a stock market investor not be concerned with unique risks when calculating expected rates of return?

• A)there is no method to quantify unique risks.
• B)unique risks are assumed to be diversified away.
• C)unique risks are compensated by the risk-free rate.
• D)Beta includes a component to compensate unique risk.

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Definitions:

Straight-Line Method

A method of calculating depreciation of an asset, which divides the difference between its cost and salvage value by the useful life of the asset.

Resale Value

The estimated value or price at which an asset or item can be sold again in the future.

Equipment

Tangible property used in operations, such as machinery, computer hardware, and vehicles.

Double-Declining-Balance

A method of accelerated depreciation where the book value of an asset is reduced at double the rate of its straight-line depreciation.