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Which of the following statements is FALSE? Firm specific news is good or bad news about...

Which of the following statements is FALSE?

Firm specific news is good or bad news about the company itself.

The risk premium for a stock is affected by its idiosyncratic risk.

When firms carry both types of risk, only the firm-specific risk will be diversified when we combine many firms' stocks into a portfolio.

Firms are affected by both systematic and firm-specific risk.
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Answer #1

Statement 2 is FALSE Idiosyncratic risk is unsystematic risk. Risk premium is affected by the systematic risk.

Statement 1 is true. Firm specific risk may be good or bad but is regarding the company itself.

Statement 3 is true since only firm specific risk can be diversified.

Statement 4 is true since both systematic and firm specific risk impact the firm.

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