Non-Diversifiable Risk

question 28

Multiple Choice

Non-diversifiable risk:

• A) can be cut almost in half by simply investing in 10 stocks provided each stock is in a different industry.
• B) can almost be eliminated by investing in 35 diverse securities.
• C) remains constant regardless of the number of securities held in a portfolio.
• D) has little, if any, impact on the actual realized returns for a diversified portfolio.
• E) should be ignored by investors.

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Definitions:

Money Supply Growth Rate

The rate at which the amount of money available in an economy grows, influencing inflation and economic activity.

Natural Rate of Unemployment

The level of unemployment consistent with a stable rate of inflation, determined by the structure of the labor market.

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Natural Rate of Unemployment

The level of unemployment consistent with a stable rate of inflation, also seen as the equilibrium between the labor force and the number of available jobs.