Tax & EvaluationQuestion 106 of 110
Which type of risk cannot be reduced by holding a widely diversified equity mutual fund?
a.Business risk of an individual company
b.Systematic risk, also called market risk
c.Industry concentration risk
d.Single-issuer default risk
Explanation
Diversification eliminates risks specific to a company or industry, but a broad market decline affects nearly all equities at once, so systematic risk remains. That is precisely why diversified funds still lose value in bear markets. The other three are unsystematic risks that spreading holdings across issuers and sectors addresses.
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