If we are able to eliminate all of the unsystematic risk in a portfolio then,what is the result?

Question

Quizplus · Accepted Answer

If all unsystematic risk is eliminated from a portfolio, only systematic risk will remain. This means that the portfolio will be fully exposed to factors such as fluctuations in the overall market, interest rates, and inflation. However, it is not a risk-free portfolio as it is still subject to systematic risk. Option A is incorrect because a risk-free portfolio implies no risk at all, which is not possible in the context of investing. Option C is incorrect because the expected return of a portfolio depends on the systematic risk exposure and the expected returns of the individual assets in the portfolio. Option D is incorrect because it is possible to eliminate unsystematic risk by diversifying the portfolio across a variety of assets.

If We Are Able to Eliminate All of the Unsystematic