Explain the Difference Between Systematic Risk and Unsystematic Risk

question 50

Essay

Explain the difference between systematic risk and unsystematic risk.

---

Definitions:

Yield To Maturity

The total return anticipated on a bond if it is held until the maturity date, taking into account both the interest payments and capital gains or losses.

Bond Duration

The weighted average time until the cash flows of a bond are received, serving as an indicator of the bond's sensitivity to interest rate changes.

Coupon Rate

The annual interest rate paid by a bond issuer to its bondholders, typically expressed as a percentage of the bond's face value.

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and payable.