An investments total risk can be partitioned into two parts

Question

An investment's total risk can be partitioned into two parts, systematic risk and unsystematic risk. Which of the following is/are true?

I. Systematic risk can be eliminated through diversification.

II. Unsystematic risk cannot be eliminated through diversification.

III. Only systematic risk is relevant for evaluating investment opportunity.

       I and II only

       I and III only

       II and III only

       III only

       I, II and III

2. Which of the following is/are true?

I. The basic relationship in bond valuation is for a given percentage change in required rate of return, the longer the time to maturity, the smaller the change in bond value.

II. The higher the investor's required rate of return on a bond, the lower will be the value of the bond to the investor.

III. Bond prices of longer term bonds are more sensitive to changes in required rates of return than short-term bonds.

       I, and II only

       I, and III only

       II and III only

       III only

       I only

       II only