An investor holds a diversified equity portfolio and is evaluating unsystematic risk. According to the chapter, which statement is most accurate?
Explanation
Diversification mitigates unsystematic risk for portfolios but does not remove its relevance at the enterprise or undiversified investor level.
Other questions
Which definition best describes market risk?
Which item is the best description of liquidity risk as used in the chapter?
Which of the following is an example of operational risk?
Model risk is best described as which of the following?
Tail risk refers to which of the following?
Which metric measures the first-order sensitivity of an option price to a small change in the underlying asset price?
Which of the following best defines Value at Risk (VaR)?
Conditional VaR (CVaR) is best described as:
A firm reports a one-day 5% VaR of 2 million EUR. What does this statement mean?
Which of the following best illustrates wrong-way risk?
Which statement describes systemic risk?
Which of the following is a principal determinant of solvency risk for an organization?
Which of these best characterizes the function of a deductible in an insurance policy?
Which of the following best explains reinsurance?
Which derivative measure reflects the sensitivity of an option's delta to changes in the underlying price?
An investor measures their equity volatility as the standard deviation of monthly returns. Which limitation of standard deviation is highlighted in the chapter?
Which of the following is an illustration of risk shifting rather than risk transfer?
Which of the following is NOT a Greek commonly used to measure option risk?
Which of the following best captures the role of CDS (credit default swap) prices in credit analysis?
Which method is described as self-insurance in organizational risk management?
Which term best describes the use of derivatives to change a firm's payoff distribution, potentially sacrificing some upside to limit downside?
Which of the following is a correct example of stress testing or scenario analysis?
Which statement best describes diversification as a risk-management technique?
Which of these is a correct description of a forward commitment?
Which approach is typically preferred for risks that offer little benefit but high potential cost?
Which of the following best captures the relationship between probability and risk as discussed?
In the chapter example, monthly S&P 500 returns between 1950 and 2018 had an average of 0.70% and a standard deviation of 4.10%. The single worst monthly return was -21.76%. According to a normal model, roughly how implausible was that event (as stated)?
Which of the following best summarizes why VaR can be misleading if used alone?
Which of the following best captures the distinction between a forward contract and an option in the chapter?
Which of the following best describes a catastrophe bond (cat bond)?
Which ratio is most directly used to assess a borrower's short-term liquidity in credit analysis?
Which of the following statements concerning risk governance is consistent with the chapter?
What does 'risk tolerance' determine within an organization?
Which risk-management action would a company likely take if it has abundant free cash and wants to minimize the cost of using external insurance?
Which of these is an example of a surety bond as described in the chapter?
Which of the following best describes mortality risk in the context of personal financial planning?
Which of the following is a correct statement about duration?
Which of the following best explains why operational risks are difficult to insure comprehensively?
Which of the following best explains 'risk budget' in enterprise risk management?
Which metric would best capture the risk that a bond's price will fall when interest rates rise?
Which of the following examples from the chapter illustrates an interaction between market risk and credit risk?
Which of the following best describes the 'Greeks' collectively?
Which of the following best captures the chapter's guidance on choosing among risk modification methods?
Which of the following best exemplifies 'risk acceptance' as discussed in the chapter?
Which of the following best explains why rare events pose measurement challenges in credit and operational risk?
Which concept describes the risk that employees, even if honest, can cause costly mistakes through errors?
If an investor hedges 100 percent of a foreign-currency exposure of 40 percent of portfolio value using a forward whose forward premium reduces expected portfolio return by 0.03 percentage points, what is the impact on expected return if the unhedged expected return was 3.9%?
Which of the following best describes a fidelity bond?
Which of the following statements about interactions between risks is most consistent with the chapter?