Chapter 13 covers one of the most important topics in Finance - the relationship between risk and return. As you know by now, investors generally demand a risk premium (i.e., higher average returns) on assets that are riskier. For example, as we learned in Chapter 12, the average annual return on stocks has been higher than that on bonds.

Chapter 13 goes deeper into the concept of risk. The total risk of an asset is composed of systematic plus unsystematic risk. And we are told that the risk premium on an asset (such as an individual stock) depends only on its systematic risk.

Does this mean that unsystematic risk is not important or relevant to an investor?

Please post your comments on this topic.