alleryStart learning →An investor holding one stock rather than many is most exposed to which avoidable risk?
ASystematic risk
BThe risk-free rate
CThe market return
DUnsystematic risk
Answer & Solution
Correct answer: D. Unsystematic risk
1. Concentration leaves the diversifiable risk in place.
2. Portfolio diversification protects you from unsystematic risk.
3. Holding one stock forgoes that protection.
4. Unsystematic risk covers events like a lawsuit or an accounting scandal.
5. So the single-stock holder is most exposed to unsystematic risk.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 15 'Risk, Return, and Capital Market Theory'_
Keep practising Risk and Return
Browse all Risk and Return questions for US CMA Part 2, or explore more Finance topics.
Related questions
Complete the risk rulesMatch each risk termStack the risk termsSort the CAPM symbolsPull the rope to the right riskUnder CAPM, an asset with higher systematic risk should offer an expected return that is:Beta is relevant to investors because it measures the risk that is:A market-wide crash affecting nearly every stock is best classified as: