SIE practice questioneasySystematic vs unsystematic risk
Diversification is most effective at reducing which type of risk?
- ASystematic risk
- BBusiness risk
- CUnsystematic risk✓ Correct answer
- DInterest rate risk
Explanation
Why C — Unsystematic risk
Unsystematic risk is company- or industry-specific and can be reduced through diversification. Systematic risk is inherent to the entire market and cannot be diversified away.
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