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The purpose of portfolio diversification is to get rid of A. market risk B. firm-specific risk...

The purpose of portfolio diversification is to get rid of A. market risk B. firm-specific risk C. systematic risk D. non-diversifiable risk

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Answer #1

Answer : B. firm-specific risk

Note:

A. Market risks are those risks that cannot be avoided by any means

B. Firm specific risks are those risks that can be avoided if the investment is not made in a particular firm to which certain risks pertain. These risks can hence be avoided through diversification.

C. Systematic risks are those risks that cannot be avoided by any diversification.

D.  non-diversifiable risk are those risks that cannot be avoided by any diversification.

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