The part of a security's risk associated with economic factors that affect all firms to some extent is also known as the _____.
A) diversifiable risk
B) unsystematic risk
C) stand-alone risk
D) market risk
E) business risk

Question

Quizplus · Accepted Answer

Market risk is the part of a security's risk that is associated with factors affecting the overall market and economy, such as changes in interest rates, inflation rates, and geopolitical events. This risk cannot be diversified away and affects all securities to some extent. Diversifiable risk (A) is the part of a security's risk that can be eliminated through diversification, such as company-specific risk. Unsystematic risk (B) is the same as diversifiable risk. Stand-alone risk (C) refers to the risk of an individual investment without consideration of its place in a portfolio. Business risk (E) is the risk associated specifically with a company's operations and is a subset of market risk.

The Part of a Security's Risk Associated with Economic Factors