An investor who owns a well-diversified portfolio would consider ________ to be irrelevant.

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BlackTom AI · Accepted Answer

When evaluating risk in a diversified portfolio, it helps to separate the different types of risk that can affect returns.
Option 1: "market risk". This is a form of systematic risk that affects almost all assets and cannot be eliminated by diversification, so it is not considered irrelevant in a well-diversified portfolio.
Option 2: "the systematic portion of a surprise". Systematic risk refers to broad market factors that impact many securities; since diversification cannot eliminate this, labeling the systematic portion as irrelevant would be incorrect.
Option 3: "nondiversifiable risk". This is another term for systematic risk, the risk that cannot be mitigated through diversification, so it would not be deemed irrelevant.
Option 4: "unsystematic risk". This is the risk specific to an individual security or a small group of securities. A well-diversified portfolio can largely eliminate unsystematic risk, making it effectively irrelevant to the portfolio’s overall risk profile.
Option 5: "systematic risk". This remains in a diversified portfolio and cannot be diversified away, so it is not irrelevant.
Therefore, among the options, unsystematic risk is the one that a well-diversified portfolio would regard as irrelevant to its overall risk and return characteristics.

BUSFIN 3220 AU2025 (2910) Exam 3 - Requires Respondus LockDown Browser

An investor who owns a well-diversified portfolio would consider ________ to be irrelevant.

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