TOAP UITF Certification Program Qualifying Exam Practice Questions - TOAP Unit Investment Trust Fund (UITF) Certification Program Qualifying Exam

According to the Capital Asset Pricing Model (CAPM), what risk component is measured by Beta, and how is it managed?

Unsystematic risk; it can be eliminated through diversification across at least 30 stocks. Total risk; it represents the sum of credit and market risks and is managed using duration hedging. Systematic risk; it cannot be eliminated through diversification and requires a risk premium. Liquidity risk; it represents the ease of asset liquidation and is managed through cash reserves.

Correct Answer:

Systematic risk; it cannot be eliminated through diversification and requires a risk premium.

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