Asked by ashlee clowers on Jul 08, 2024
Verified
The risk that can be diversified is also called:
A) Systematic risk.
B) Unsystematic risk.
C) Portfolio risk.
D) Foreseeable risk.
E) Unforeseeable risk.
Diversified Risk
Diversified risk refers to the reduction of risk in an investment portfolio by allocating investments among various financial instruments, industries, or other categories.
Systematic Risk
This is the exposure to uncertainty faced by all investments in a market or a sector, and is also recognized as market risk or non-diversifiable risk.
Unsystematic Risk
The risk of price change due to the unique circumstances of a specific security, as opposed to the market as a whole.
- Explain the disparity between systematic and unsystematic risks, considering their effects on the broadening of portfolio investments.
Verified Answer
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Final Answer :
B
Explanation :
Unsystematic risk, also known as specific risk, diversifiable risk, or idiosyncratic risk, refers to the risk associated with a specific company or industry. This type of risk can be reduced or eliminated through diversification, which involves spreading investments across various sectors or asset classes.
Learning Objectives
- Explain the disparity between systematic and unsystematic risks, considering their effects on the broadening of portfolio investments.