Products & Their RisksQuestion 142 of 398
Unsystematic risk refers to risk that is:
a.Common to all securities in the market
b.Impossible to reduce by any means
c.Specific to a single company or industry and can be reduced through diversification
d.Caused only by rising interest rates
Explanation
Unsystematic risk (also called specific or diversifiable risk) is unique to a particular company or industry, such as a product recall, a lawsuit, or a labor strike. Because these events are not correlated across all firms, holding a diversified mix of securities reduces or nearly eliminates unsystematic risk. What remains after full diversification is systematic (market) risk.
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