Portfolio diversification eliminates which one of the following?
A)unsystematic risk
B)reward for bearing risk
C)total investment risk
D)portfolio risk premium
E)market risk

Question

Quizplus · Accepted Answer

Portfolio diversification eliminates unsystematic risk, which is unique to a particular company or industry. Systematic risk or market risk cannot be eliminated through diversification as it is related to macroeconomic factors that affect the entire market. Reward for bearing risk or portfolio risk premium cannot be eliminated as it is the compensation investors receive for taking on risk. Total investment risk also cannot be eliminated completely, but it can be reduced through diversification.

Portfolio Diversification Eliminates Which One of the Following