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    Question

    A portfolio’s total risk is a combination of the risk

    of the individual investments in the portfolio. The total risk of a portfolio consists of which of the following?
    A Unique risk plus diversifiable risk Correct Answer Incorrect Answer
    B Market risk plus non-diversifiable risk Correct Answer Incorrect Answer
    C Systematic risk plus unsystematic risk Correct Answer Incorrect Answer
    D Systemic risk Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The portfolio's total risk is measured by the standard deviation of returns of the portfolio. It consists of systematic plus unsystematic risk. Systematic risk is the risk of the market that affects all investments while unsystematic risk is investment specific. Unsystematic risk can be managed by creating a well diversified portfolio. Unique risk is diversifiable and is unsystematic. Market risk (systematic risk) is a non-diversifiable risk.

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