Which of the following statements are correct concerning diversifiable risks?
I.Diversifiable risks can be essentially eliminated by investing in thirty unrelated securities.
II.There is no reward for accepting diversifiable risks.
III.Diversifiable risks are generally associated with an individual firm or industry.
IV.Beta measures diversifiable risk.
A)I and III only
B)II and IV only
C)I and IV only
D)I, II and III only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

Diversifiable risks, also known as unsystematic risks, are specific to an individual firm or industry and can be nearly eliminated through diversification, such as by investing in a broad portfolio of unrelated securities. There is no additional expected reward for bearing diversifiable risks because they can be mitigated through diversification. Beta measures systematic risk, not diversifiable risk, making statement IV incorrect.

Which of the Following Statements Are Correct Concerning Diversifiable Risks