Question

Portfolio diversification eliminates: Multiple Choice all investment risk. the portfolio risk premium. market risk. unsystematic risk. the reward for bearing risk.

Answer 1

Answer:

Unsystematic risk

Explanation:

The portfolio theory posits that the total risk on a collection of assets (i,e a portfolio) can be reduced by spreading the invested fund into different assets that are uncorrelated.

According to this model, the total risk on a portfolio is divided into systematic and unsystematic risks. The theory assumed by diversification, the unsystematic risk associated with a portfolio is eliminated.

Unsystematic risk essentially are those unique individual assets for example. if we invest in company stock, risk associated with factors like bad management , law suit against a company, defect in company;s products are example of unique or systematic risks