Certified Management Accountant 2026 – 400 Free Practice Questions to Pass the Exam

The correct choice identifies specific risk from individual investments as unsystematic risk. Unsystematic risk is the type of risk that is unique to a particular company or industry. This means it can be mitigated or eliminated through diversification in an investment portfolio. For example, if a particular company faces challenges, such as management issues or operational setbacks, that specific company’s stock may decline in value, but this does not necessarily impact the overall market or other unrelated investments.

On the other hand, risks like market volatility, interest rate fluctuations, and economic downturns are systematic risks. These risks affect the entire market or large segments of the economy and cannot be diversified away. For instance, market volatility impacts all stocks and securities, interest rate changes can affect all borrowers and lenders, and economic downturns influence the overall performance of many industries simultaneously. This distinction is vital for investors as it impacts their strategies for managing risk within their portfolios.