Use the Information for the Question(s)below

question 4

Multiple Choice

Use the information for the question(s) below.
Consider an economy with two types of firms, S and U. The S firms always move together, but U firms move independently of each other. For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.
-The risk premium of a share is not affected by its

• A)unsystematic risk.
• B)undiversifiable risk.
• C)typical risk.
• D)systematic risk.

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Definitions:

Deductive Reasoning

A logical process in which a conclusion follows necessarily from the stated premises; inference from general to specific.

Inductive Reasoning

A method of reasoning in which specific observations or examples are used to form a general conclusion or principle.

Hypothetical Thinking

The process of exploring and considering possibilities or outcomes that do not currently exist or have not yet occurred.

Deductive Reasoning

A reasoning method in which a conclusion is drawn from the agreement of several premises that are widely accepted as true.