Which of the following statements are correct concerning diversifiable risks?
I. Diversifiable risks can be essentially eliminated by investing in 30 unrelated securities.
II. There is no reward for accepting diversifiable risks.
III. Diversifiable risks are generally associated with an individual firm or industry.
IV. Beta measures diversifiable risk.
A) I and III only
B) II and IV only
C) I and IV only
D) I, II and III only
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

I. Diversifiable risks can be reduced, if not entirely eliminated, by investing in a broad portfolio of assets, where 30 unrelated securities is often cited as a practical guideline. II. Diversifiable risks are considered unnecessary or unrewarded because they can be mitigated through diversification, unlike systematic risks which are inherent to the entire market and cannot be diversified away. III. Diversifiable risks are indeed specific to individual firms or industries, such as risks related to company management or sector-specific challenges. IV. Beta measures systematic risk, not diversifiable risk, which is why it is not included in the correct statements.

Which of the Following Statements Are Correct Concerning Diversifiable Risks