Answer (D) is correct . Systematic risk, also called market risk, is the risk faced by all firms. Changes in the economy as a whole, such as the business cycle, affect all players in the market. For this reason, systematic risk is sometimes referred to as undiversifiable risk. Since all investment securities are affected, this risk cannot be offset through portfolio diversification.
Answer (A) is incorrect because Credit risk is the risk that the issuer of a debt security will default.
Answer (B) is incorrect because Unsystematic risk, also called company or diversifiable risk, is the risk inherent in a particular investment security. Since individual securities are affected differently by economic conditions, this risk can be offset through portfolio diversification.
Answer (C) is incorrect because Unsystematic risk, also called company or diversifiable risk, is the risk inherent in a particular investment security. Since individual securities are affected differently by economic conditions, this risk can be offset through portfolio diversification.
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