MULTIPLE CHOICE: Choose the one alternative that best completes the statement or answers the question.
A) cannot be eliminated through diversification.
B) is the risk eliminated through diversification.
C) represents the risk affecting a specific company.
D) is another name for risk unique to an individual asset.
In many investments, there are risks that are involved. Risks are generally classified into either:
- Financial risks.
- Business risks.
Business risks are further classified into systematic and unsystematic risks.
Answer and Explanation:
The correct answer is (A) cannot be eliminated through diversification.
Systematic risks are the risks that affect the whole firm in an industry. Generally, they remain even when there is diversification. This means these risks cannot be reduced through diversification.
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from Finance 305: Risk ManagementChapter 3 / Lesson 3