Which of the following is true for unsystematic risk?
A) It can be almost entirely eliminated in a portfolio
B) It is measured by beta
C) It is also called market risk
D) It is compensated with a risk premium
E) All of the above.

Question

Quizplus · Accepted Answer

Unsystematic risk, also known as specific risk, pertains to the risks associated with a specific company or industry, and can be diversified away by holding a portfolio of assets. This is a fundamental principle of modern portfolio theory. Therefore, option A, which states that unsystematic risk can be almost entirely eliminated in a portfolio, is true. Option B is incorrect as beta is a measure of systematic risk, not unsystematic risk. Option C is incorrect as market risk refers to systematic risk. Option D is incorrect; unsystematic risk is uncompensated as it can be diversified away. Therefore, option E is also incorrect as it contains all options.

Which of the Following Is True for Unsystematic Risk