The total risk associated with an investment can be divided into _____.
A) systematic and nondiversifiable risk
B) firm-specific and unsystematic risk
C) market and firm specific risk
D) market and nondiversifiable risk
E) firm-specific and diversifiable risk

Question

Quizplus · Accepted Answer

The total risk associated with an investment can be divided into market risk and firm-specific risk. Market risk is the risk associated with the overall market and cannot be diversified away, while firm-specific risk is the risk that is unique to a particular company and can be diversified away through proper diversification. Therefore, option C, which states that the total risk can be divided into market and firm-specific risk, is the best answer. The other options are either incorrect or do not fully capture the different types of risk associated with an investment.

The Total Risk Associated with an Investment Can Be Divided