Under the CMT, the relevant risk to consider with any security is:
A) its correlation with other securities in the portfolio.
B) its covariance with the market portfolio.
C) its deviation from the portfolio required rate of return.
D) its variance from the risk-free rate of return.

Question

Quizplus · Accepted Answer

Under the Capital Market Theory (CMT), the relevant risk of a security is its systematic risk, which is measured by its covariance with the market portfolio. This is because systematic risk cannot be diversified away and is the risk that affects all securities in the market.

Under the CMT, the Relevant Risk to Consider with Any