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Financial Planner

Category - Investment Planning

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Beta used to determine risk is only accurate when calculated for what?

Investment Risk
Reinvestment Risk
Diversified Portfolios
Streamed Portfolios

Explanation

Answer: C - Beta used to determine risk is only accurate when calculated for diversified portfolios. The beta is a measure by which systematic risk is determined. Systematic risk includes risks that affect the entire market. An acronym to remember this is PRIME: purchasing power risk, reinvestment risk, interest rate risk, market risk, and exchange rat risk (foreign currency risk). Systematic risk cannot be eliminated through diversification because it affects the entire market.

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