What type of risk cannot be eliminated through portfolio diversification across asset classes?
AFirm-Specific Risk
BBusiness Risk
CUnsystematic Risk (Specific Risk)
DSystematic Risk (Market Risk)
Explanation
* Systematic Risk (Market Risk) stems from macro events (inflation, interest rates, war) affecting all securities.
* Measured by Beta coefficient (CAPM model).
* Unsystematic risk (firm-specific) can be eliminated via proper portfolio diversification.
Exam Relevance
- Topic: Corporate Finance
- Subtopic: Risk & Return
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