ipm 07

market risk is also referred to as

• A. systematic risk, diversifiable risk

• B. systematic risk, non-diversifiable risk

• C. unique risk, non-diversificable risk

• D. unique risk, non-diversifiable risk

• E. none of the above

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Systematic risk is also referred to as

• A. market risk, nondiversifiable risk.

• B. market risk, diversifiable risk

• C. unique risk, nondiversifiable risk

• D. unique risk, diversifiable risk

• E. none of the above

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Nondiversifiable risk is also referred to as

• A. systematic risk, unique risk.

• B. systematic risk, market risk.

• C. unique risk, market risk.

• D. unique risk, firm-specific risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Diversifiable risk is also referred to as

• A. systematic risk, unique risk.

• B. systematic risk, market risk.

• C. unique risk, market risk.

• D. unique risk, firm-specific risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Unique risk is also referred to as

• A. systematic risk, diversifiable risk.

• B. systematic risk, market risk.

• C. diversifiable risk, market risk.

• D. diversifiable risk, firm-specific risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Firm-specific risk is also referred to as

• A. systematic risk, diversifiable risk.

• B. systematic risk, market risk.

• C. diversifiable risk, market risk.

• D. diversifiable risk, unique risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

Non-systematic risk is also referred to as

• A. market risk, diversifiable risk.

• B. firm-specific risk, market risk.

• C. diversifiable risk, market risk.

• D. diversifiable risk, unique risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

The risk that can be diversified away is

• A. firm specific risk.

• B. beta.

• C. systematic risk.

• D. market risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

The risk that cannot be diversified away is

• The risk that cannot be diversified away is

• B. unique.

• C. non-systematic risk.

• D. market risk.

• E. none of the above.

Answer explanation

Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.

The variance of a portfolio of risky securities

• A. is a weighted sum of the securities' variances.

• B. is the sum of the securities' variances.

• C. is the weighted sum of the securities' variances and covariances.

• D. is the sum of the securities' covariances.

• E. none of the above.

Answer explanation

The variance of a portfolio of risky securities is a weighted sum taking into account both the variance of

the individual securities and the covariances between securities.