SIE practice questioneasyRisk — Concentration Risk
An investor who puts 80% of their portfolio in a single stock faces primarily:
- AInterest rate risk
- BInflation risk
- CCurrency risk
- DConcentration risk (a form of unsystematic risk)✓ Correct answer
Explanation
Why D — Concentration risk (a form of unsystematic risk)
Concentration risk is the risk of significant loss from having too much exposure to a single investment, sector, or asset class. With 80% in one stock, a negative event at that company could devastate the portfolio. This is unsystematic risk that could be mitigated through diversification. While the stock may also carry other risks, the most prominent concern is the extreme lack of diversification.
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