Which of the following is the only risk that is relevant to a rational, diversified investor, because it cannot be eliminated or reduced through diversification?
A)Diversifiable risk
B)Stand-alone risk
C)Market risk
D)Unsystematic risk
E)Firm-specific risk

Question

Quizplus · Accepted Answer

Market risk, also known as systematic risk, is the only risk that is relevant to a rational, diversified investor because it cannot be eliminated or reduced through diversification. This risk is related to overall market movements and affects all securities, regardless of their specific characteristics or company-specific news. Therefore, a diversified investor can only manage market risk by adjusting their overall level of exposure to the market, such as through asset allocation or hedging strategies. Diversifiable risk, stand-alone risk, unsystematic risk, and firm-specific risk can all be reduced through diversification by spreading investments across different assets or securities.

Which of the Following Is the Only Risk That Is