Question

1. Which term has a different meaning than the others? Diversifiable risk Unsystematic risk Market risk...

1. Which term has a different meaning than the others?

Diversifiable risk

Unsystematic risk

Market risk

Nonsystematic risk

Firm-specific risk

2. Systematic risk is also called _____.

Check all that apply:

market risk

non-diversifiable risk

common risk

fundamental risk

3. Nonsystematic risk is also called _____.

Check all that apply:

random risk

unsystematic risk

firm-specific risk

diversifiable risk

4. Diversification is _____. It _____.

the mixing of different assets within a portfolio; reduces overall portfolio risk

buying more than three stocks; reduces overall portfolio risk

buying more than three stocks; increases the expected return

the mixing of different assets within a portfolio; increases the expected return

5. Diversification can eliminate _____ risk.

unsystematic or specific

systematic or market

no

all

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Homework Answers

Answer #1

1.

Market Risk

Explanation:

Diversifiable risk is the unsystematic risk which can be eliminated by diversification.

2.

non-diversifiable risk

Explanation:

Systematic Risk is the non-diversificable risk which cannot be diversified.

3.

unsystematic risk

firm-specific risk

diversifiable risk

Explanation:

Non-systematic risk can be diversified away and they are firm specific

4.

the mixing of different assets within a portfolio; reduces overall portfolio risk

Explanation:

Purpose behind diversification is to reduce overall risk of the portfolio and is not to increase expected return. It is one by mixing different assets in the portfolio having low correlation

5.

unsystematic or specific

Explanation:

Diversification can eliminate unsystematic risk or firm specific risk

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