The separation theorem states that:
A)systematic risk is separate from unsystematic risk.
B)individual security risk is separate from portfolio risk.
C)the investment decision is separate from the financing decision.
D)borrowing portfolio is separate from the lending portfolio.

Question

Quizplus · Accepted Answer

Systematic risk is the risk that affects the entire market or a large segment of it, while unsystematic risk is the risk that is specific to a particular company or industry. The separation theorem states that systematic risk can be diversified away through diversification, while unsystematic risk cannot.

The Separation Theorem States That