SIE practice questioneasyMarket risk
If an investor owns a broadly diversified portfolio of U.S. stocks and the entire stock market declines sharply, which type of risk is most responsible for losses in the investor’s portfolio?
- ACredit risk
- BMarket risk✓ Correct answer
- CLiquidity risk
- DCall risk
Explanation
Why B — Market risk
Market risk (systematic risk) affects all securities in the market and cannot be eliminated through diversification. Credit risk is related to a borrower's ability to repay debt, liquidity risk is about the ability to sell quickly, and call risk relates to early redemption by issuers.
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