The Amount of a Stock's Risk That Is Diversified Away

question 83

Multiple Choice

The amount of a stock's risk that is diversified away ________.

• A) is independent of the portfolio that you add it to
• B) depends on market risk premium
• C) depends on risk-free rate of interest
• D) depends on the portfolio that you add it to

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Definitions:

Stock

A type of security representing ownership in a corporation and a claim on part of the corporation's assets and earnings.

Term

In finance, it refers to the length of time until a loan's maturity. In general, it can mean a period or condition stipulated in an agreement.

Higher Rate

A term that generally indicates a rate (of interest, tax, etc.) that is above the normal or average level.

Capital Goods

Long-term assets that are used in the production of other goods and services, such as buildings, machinery, and equipment, which are not consumed in the production process.