Question

Which of the following statements regarding investment risk is correct?

1.) Beta is a measure of systematic, non-diversifiable risk

2.) Rational investors will form portfolios and eliminate systematic risk

3.) Rational investors will form portfolios and eliminate unsystematic risk

4.) Systematic risk is the relevant risk for a well diversified portfolio

5.) Beta capture all the risk inherent in an individual security

a.) 1 and 5

b.) 2 and 5

c.) 1,3, and 4

d.) 2,3, and 4

Answer 1

The correct statement regarding investment risk is that Beta is a measure of systematic, non-diversifiable risk and Beta captures all the risk inherent in an individual security.

Step-by-step explanation:

The correct statement regarding investment risk is option a.) 1 and 5. Option 1 states that Beta is a measure of systematic, non-diversifiable risk, which is correct. Beta measures the sensitivity of a security's returns to the overall market returns.

Option 5 states that Beta captures all the risk inherent in an individual security, which is also correct. A security with a high Beta indicates higher systematic risk.