Asked by macie hutchinson on May 26, 2024
Verified
Nonsystematic risk is also referred to as
A) market riskor diversifiable risk.
B) firm-specific risk or market risk.
C) diversifiable risk or market risk.
D) diversifiable risk or unique risk.
Nonsystematic Risk
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk, firm-specific risk, or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.
Diversifiable Risk
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk, firm-specific risk, or nonsystematic risk. Nondiversifiable risk refers to systematic or market risk.
Market Risk
Also known as systemic risk, it's the potential for investors to experience losses due to factors that affect the overall performance of the financial markets.
- Define and differentiate between systematic and nonsystematic risks.
- Differentiate among different types of risks (market risk, unique risk, firm-specific risk, diversifiable risk).
Verified Answer
JR
Jenny RabangJun 01, 2024
Final Answer :
D
Explanation :
Nonsystematic risk, also known as unsystematic risk, refers to the risk that is unique to a specific company or industry. This type of risk can be mitigated through diversification of an investment portfolio. It is correctly referred to as diversifiable risk or unique risk, as it does not affect the market as a whole.
Learning Objectives
- Define and differentiate between systematic and nonsystematic risks.
- Differentiate among different types of risks (market risk, unique risk, firm-specific risk, diversifiable risk).