The unsystematic risk of a risky security
A) is likely to be higher in a bull market
B) results from the international market forces
C) cannot be diversified by ordinary methods
D) results from its own unique factors

Question

Quizplus · Accepted Answer

Unsystematic risk, also known as company-specific risk or diversifiable risk, is the risk associated with a particular company or security that cannot be diversified away. It arises from factors such as management decisions, financial performance, labor strikes, etc. Therefore, the correct answer is D, which states that the unsystematic risk results from its own unique factors. A is incorrect because bullish markets do not necessarily increase unsystematic risk. B is incorrect because international market forces are more likely to affect systematic risk. C is incorrect because unsystematic risk can, in fact, be reduced through diversification.

The Unsystematic Risk of a Risky Security