Diversification · Question 9 of 12
Which statements about systematic and unsystematic risk are correct?
2 answers are correct. Medium
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Answer
- A Systematic market risk remains even with broad diversification
- C The unsystematic risk of individual firms can be reduced through diversification
Explanation
Company-specific risks such as a management error or a product flop largely balance out in a broad portfolio. Risks that affect the whole market, such as a recession or an interest rate shock, remain. Investors expect a risk premium for this market risk.