CS Executive · Corporate Accounting and Financial Management · Security Analysis
In portfolio theory, the risk that can be reduced by adding more securities from different industries to a portfolio is called:
Unsystematic risk is the risk that diversification can reduce. It arises from factors specific to a firm or industry, which offset each other across many securities. Systematic or market risk affects every security and cannot be diversified away.
- ASystematic risk
- BUnsystematic riskCorrect
- CMarket risk
- DInflation risk
Explanation
Diversification removes risk specific to a company or industry, known as unsystematic (diversifiable) risk. Systematic or market risk affects all securities and remains after diversification, so options A and C are wrong.
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