Which of the following statements about risk is NOT true?

Question

BlackTom AI · Accepted Answer

When evaluating statements about risk, it helps to separate the ideas of systematic (market) risk and unsystematic (firm-specific) risk.
Option 1: Firm-Specific risk can be diversified away. This is generally true because diversification across many different, uncorrelated assets reduces the impact of events that affect only a single firm. By holding a broad portfolio, the idiosyncratic shocks to one firm do not move the entire portfolio in the same direction.
Option 2: Systematic risk can be diversified away. This is not true in classical finance theory. Systematic risk arises from broad market factors (like economic growth, interest rates, inflation) that affect nearly all assets. Since these factors impact many securities simultaneously, they cannot be eliminated through diversification alone; they contribute to the portfolio’s beta and market risk.
Option 3: Higher returns are associated with taking on more risk. This statement aligns with the risk–return tradeoff: investors typically require higher expected returns to bear greater risk, though the relationship is not guaranteed, and actual realized returns depend on many factors. Nonetheless, the general principle supports the idea that more risk can accompany higher potential rewards.
Option 4: All of the above are true. Given that Option 2 is not true (systematic risk cannot be diversified away), this blanket statement cannot be correct. It would be inconsistent with the established distinction between systematic and unsystematic risk.

MSB-250-300-002 Proctored Final Exam

Which of the following statements about risk is NOT true?

查看解析

登录即可查看完整答案

类似问题

You can best reduce investment risk by investing in

Holding a portfolio of 30 selected stocks eliminates all risk for an investor.

Part 1Which of the following is a benefit to an individual purchasing a mutual fund? Part 2 A. An opportunity to free ride B. Diversification C. Increased risk D. Higher transaction costs

Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

………… could be eliminated by portfolio diversification.

One of the advantages of investing in a managed investment fund is that the investors can:

Ms Brown is reviewing her investment portfolio of Australian shares with her advisor. Which of the following statements best explains why investors are typically not compensated for taking on unsystematic risk?

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

MSB-250-300-002 Proctored Final Exam

Which of the following statements about risk is NOT true?

查看解析

登录即可查看完整答案

类似问题

You can best reduce investment risk by investing in

Holding a portfolio of 30 selected stocks eliminates all risk for an investor.

Part 1Which of the following is a benefit to an individual purchasing a mutual​ fund? Part 2 A. An opportunity to free ride B. Diversification C. Increased risk D. Higher transaction costs

Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

………… could be eliminated by portfolio diversification.

One of the advantages of investing in a managed investment fund is that the investors can:

Ms Brown is reviewing her investment portfolio of Australian shares with her advisor. Which of the following statements best explains why investors are typically not compensated for taking on unsystematic risk?

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单

Part 1Which of the following is a benefit to an individual purchasing a mutual fund? Part 2 A. An opportunity to free ride B. Diversification C. Increased risk D. Higher transaction costs