Final answer:
Market risk, also known as systematic risk, refers to the risk inherent to the entire market due to market volatility that affects all securities. Option A
Step-by-step explanation:
The correct answer to the student's question is A. Market risk, which is also referred to as systematic risk. This type of risk is inherent in all securities and is associated with market volatility. Unlike unsystematic risk, which can be diversified away, market risk affects all securities and cannot be eliminated through diversification.
Investments must be analyzed based on three factors: the expected rate of return, the risk, and the liquidity (how easily an asset can be converted into cash). While a high-risk investment may offer a wide range of potential returns, it also means that actual returns can significantly differ from the expected rate of return.
Contrastingly, a low-risk investment typically sees actual returns closely align with the expected rate of return. Option A