Which of the following statements is correct?
A) Well diversified stockholders do not consider corporate risk when determining required rates of return.
B) Undiversified stockholders, including the owners of small businesses, are more concerned about corporate risk than market risk.
C) Managers care only about market risk.
D) Market risk is important but does not have a direct effect on stock price because it only affects beta.
E) All of the statements above are false.

Question

Quizplus · Accepted Answer

Undiversified stockholders, including the owners of small businesses, are more concerned about corporate risk than market risk because they have a significant portion of their wealth tied up in one company, making them much more exposed to the company's risk. This is in contrast to well-diversified stockholders who have their risk spread across many companies and therefore consider market risk more important than corporate risk. The other statements in the list are false or incomplete.

Which of the Following Statements Is Correct