The correct answer is: B. portfolio risk
Market risk is the risk that all stocks share, and it cannot be diversified away. Diversifiable risk is the risk that is specific to a particular stock, and it can be diversified away by holding a portfolio of stocks.
A stock’s risk is the sum of its market risk and its diversifiable risk. The expected return of a portfolio is the weighted average of the expected returns of the stocks in the portfolio. The stock return is the actual return that a stock earns over a given period of time.
Here is a more detailed explanation of each option:
- A. stock’s risk
A stock’s risk is the sum of its market risk and its diversifiable risk. Market risk is the risk that all stocks share, and it cannot be diversified away. Diversifiable risk is the risk that is specific to a particular stock, and it can be diversified away by holding a portfolio of stocks.
- B. portfolio risk
Portfolio risk is the risk of a portfolio of stocks. It is the sum of the market risk and the diversifiable risk of the stocks in the portfolio. The market risk of a portfolio cannot be diversified away, but the diversifiable risk can be diversified away by holding a large enough portfolio.
- C. expected return
The expected return of a portfolio is the weighted average of the expected returns of the stocks in the portfolio. The expected return of a stock is the probability-weighted average of the possible returns of the stock.
- D. stock return
The stock return is the actual return that a stock earns over a given period of time. The stock return is calculated by taking the difference between the stock price at the end of the period and the stock price at the beginning of the period, and then dividing by the stock price at the beginning of the period.