Question

"Unavoidable risk" is that which cannot be "diversified away" by merely holding a portfolio of many different securities.

True

False

Answer 1

The answer is True

To understand the answer we need see the defination of Systematic Risk and Unsystematic Risk

Systematic Risk or Unavoidable Risk - The risk which is inherent to the market and it cannot be avoided through diversification by the way of holding different securities in a Portfolio.

Unsystematic Risk - The risk which can be avoided through diversification by the way of holding different securities in a Portfolio. As we keep on increasing the number of securities in our portfolio, the Unsystematic Risk keeps on getting cancelled.