SIE practice questionhardSystematic vs unsystematic risk
Which best distinguishes systematic from unsystematic risk?
- AOnly systematic risk can be diversified away
- BOnly unsystematic risk is market-wide
- CSystematic risk affects all assets; unsystematic is asset-specific✓ Correct answer
- DUnsystematic risk increases with diversification
Explanation
Why C — Systematic risk affects all assets; unsystematic is asset-specific
Systematic risk impacts the entire market; unsystematic risk is specific to firms or sectors and can be reduced by diversification. The other statements are incorrect.
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