The correct answer is: D. market risk.
Market risk is the risk that a security’s price will change due to changes in the overall market. It is the risk that a security will underperform the market as a whole. Market risk is the most important risk for a well-diversified portfolio because it is the only risk that cannot be diversified away.
Interest rate risk is the risk that a security’s price will change due to changes in interest rates. Inflation risk is the risk that a security’s purchasing power will decline due to inflation. Business risk is the risk that a company’s performance will decline due to factors such as competition, changes in technology, or economic downturns.
All of these risks can affect a security’s price, but market risk is the only risk that cannot be diversified away. This is because all securities are affected by changes in the overall market. By investing in a well-diversified portfolio, investors can reduce their exposure to interest rate risk, inflation risk, and business risk. However, they cannot reduce their exposure to market risk.
Therefore, the relevant risk for a well-diversified portfolio is market risk.