A portfolio of stocks fluctuates when the Treasury yields change. Since this risk cannot be eliminated through diversification, it is called ________.
A) firm-specific risk
B) systematic risk
C) unique risk
D) none of the options

Question

Quizplus · Accepted Answer

Systematic risk, also known as market risk or non-diversifiable risk, refers to the risk that affects the overall stock market and cannot be eliminated through diversification. It is caused by factors such as changes in interest rates, inflation, and global events that influence the market as a whole. As the question states, changes in Treasury yields affect the portfolio of stocks, which makes it an example of systematic risk. The other choices, firm-specific risk and unique risk, refer to risks that can be diversified away by investing in a variety of stocks or assets.

A Portfolio of Stocks Fluctuates When the Treasury Yields Change