Investment risk can best be described as the:
A) dispersion of possible returns.
B) elimination of macro risk through diversification.
C) possibility of changes in the cost of capital.
D) level of systematic risk for an undiversified investor.

Question

Quizplus · Accepted Answer

Investment risk can be described as the uncertainty or variability of returns. The dispersion of possible returns represents the range of potential outcomes, which is a key measure of investment risk. Therefore, option A is the best choice as it directly relates to the definition of investment risk. Option B is not accurate because diversification reduces both systematic and unsystematic risk but does not eliminate macro risk entirely. Option C is not entirely accurate because changes in the cost of capital are a factor that affects investment returns, but do not fully describe investment risk. Option D is not accurate as systematic risk affects all investors, diversified or undiversified.

Investment Risk Can Best Be Described as The