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

Question

BlackTom AI · Accepted Answer

When evaluating this question, we need to identify which type of risk a well-diversified investor can safely ignore.
Option 1: unsystematic risk. This is the risk specific to an individual asset or company and is the very risk that diversification reduces. Since the portfolio is well diversified, this type of risk becomes largely irrelevant, making it the best choice.
Option 2: nondiversifiable risk. This refers to market-wide risks that affect almost all assets and cannot be eliminated by diversification. An investor with a well-diversified portfolio should not consider this irrelevant, because it still affects expected returns.
Option 3: market risk. This is another name for systematic or nondiversifiable risk, stemming from factors like economy-wide changes. Like nondiversifiable risk, it cannot be diversified away and is therefore not irrelevant to a diversified portfolio.
Option 4: systematic risk. This is the core of nondiversifiable risk and represents factors that impact the entire market. Since diversification does not elimination this risk, it remains relevant and not irrelevant to the investor’s assessment.
Option 5: the systematic portion of a surprise. This phrasing attempts to pin down systematic risk but is essentially describing the same broad concept as systematic/nondiversifiable risk, which is still not irrelevant for a diversified investor. The wording is less precise, but it does not make the risk irrelevant.
In summary, the only risk type that becomes irrelevant with a well-diversified portfolio is unsystematic (company- or asset-specific) risk, whereas the other options describe risks that persist despite diversification.

BUSFIN 3220 AU2025 (2110) Exam 3 - Requires Respondus LockDown Browser

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

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