16. The real risk-free rate of interest is 17. The nominal risk-free rate is 18. Unique Risk is 19. Market Risk is 20. Diversification is a strategy designed to reduce risk by spreading the portfolio across a broad range of investments. It works best when the returns on stocks in a portfolio are negatively correlated, because under those circumstances, when one business does poorly, another will do well. B. also called systematic risk. It comes from economy-wide sources of risk that affect the overall stock market. For a reasonably well-diversified portfolio, only this type of risk matters. C. also called diversifiable risk. It is based on risk factors affecting "only" that firm. D. the real risk-free rate plus a premium for expected inflation. The short-term risk-free rate is measured by the U.S. Treasury bill rate. E. the interest rate that would exist for a security with no risk, if no inflation were expected. It would be the rate for short-term U.S. Treasury securities in an inflation-free world