Which Type of Risk Can an Investor Effectively Manage by Investing

question 10

Multiple Choice

Which type of risk can an investor effectively manage by investing in broadly diversified mutual funds?

• A)Serial risk
• B)Systematic risk
• C)Unsystematic risk
• D)None of the above is correct.

---

Definitions:

Cross Elasticity of Demand

The ratio of the percentage change in quantity demanded of one good to the percentage change in the price of some other good. A positive coefficient indicates the two products are substitute goods; a negative coefficient indicates they are complementary goods.

Inferior Goods

Goods for which demand decreases as the income of the consumer increases, as they are typically replaced with more expensive alternatives.

Substitute Goods

Products or services that can replace each other in use or consumption, leading to a choice between them based on price, preference, or other factors.

Normal Goods

Goods for which demand increases as the income of the consumer increases, and falls when the consumer's income decreases.