Products & Their RisksQuestion 141 of 398
Systematic risk is best described as the risk that:
a.Applies only to a single company because of poor management
b.Affects the entire market and cannot be eliminated through diversification
c.Can always be removed by holding more than 30 stocks
d.Arises solely from a bond issuer defaulting
Explanation
Systematic risk (also called market risk) affects the whole market or a broad segment of it, driven by factors such as recessions, interest rate changes, or geopolitical events. Because it moves all securities to some degree, it cannot be diversified away. Investors are compensated for bearing systematic risk through expected returns above the risk-free rate.
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