Products & Their RisksQuestion 52 of 398
Which type of risk can an investor most effectively reduce through diversification across many different securities?
a.Market (systematic) risk
b.Interest-rate risk
c.Inflation risk
d.Unsystematic (business/specific) risk
Explanation
Unsystematic risk is specific to a single company or industry and can be greatly reduced by holding a diversified portfolio. Market, interest-rate, and inflation risks are systematic and affect the whole market, so diversification cannot eliminate them.
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