The Risk That Can Be Diversified Away in a Portfolio

question 22

Multiple Choice

The risk that can be diversified away in a portfolio is referred to as ___________. I) diversifiable riskII) unique riskIII) systematic riskIV) firm-specific risk

• A) I, III, and IV
• B) II, III, and IV
• C) III and IV
• D) I, II, and IV
• E) I, II, III, and IV

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Definitions:

Cash Equivalent

Short-term, highly liquid investments that can be readily converted to cash with insignificant risk of changes in value.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Financing Activities

Transactions and business events that affect long-term liabilities and equity of the company, such as issuing bonds or repaying bank loans.

Long-term Assets

Assets that are expected to provide economic benefits over a period longer than one fiscal year, such as land, buildings, and equipment.