Final answer:
Business risk is the equity risk associated with a firm's operating activities, such as market conditions and competition. It is different from financial risk (related to company financing), portfolio risk, and stand-alone risk, which are mitigated by diversification. Hence, option (D) is correct.
Step-by-step explanation:
The equity risk that comes from the nature of a firm's operating activities is known as business risk. This type of risk refers to the potential for losses or less than expected returns that arise from the firm's operational environment, such as changes in market conditions, production costs, competition, regulatory changes, and customer preferences.
It is separate from financial risk, which is related to the way in which a company finances its operations, as well as portfolio risk and stand-alone risk, which are associated with investment and can be managed through diversification, the practice of investing in a wide range of companies to reduce the level of risk.