stock's total risk depends on the stock's ________ and ________.Question 5Select one:a.beta; specific riskb.beta; market riskc.specific risk; firm-specific riskd.aggressive risk; defensive risk
Question
stock's total risk depends on the stock's ________ and ________.Question 5Select one:a.beta; specific riskb.beta; market riskc.specific risk; firm-specific riskd.aggressive risk; defensive risk
Solution
To answer the question "stock's total risk depends on the stock's ________ and ________," let's break down the options provided:
a. Beta; specific risk: Beta measures the stock's sensitivity to market movements, while specific risk (also known as unsystematic risk) pertains to risks unique to the individual stock.
b. Beta; market risk: Beta measures the stock's sensitivity to market movements, and market risk (also known as systematic risk) refers to the overall risk inherent to the entire market or market segment.
c. Specific risk; firm-specific risk: Both terms refer to the same concept, which is the risk unique to the individual stock, not accounting for market-wide factors.
d. Aggressive risk; defensive risk: These terms are not standard in the context of stock risk. Aggressive risk might imply higher volatility, while defensive risk might imply lower volatility, but they are not commonly used terms in risk assessment.
Given these explanations, the correct answer is:
b. beta; market risk
This is because the total risk of a stock is typically considered to be a combination of its market risk (systematic risk) and its specific risk (unsystematic risk), with beta being a measure of the stock's market risk.
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