Which of the following statements about market risk and firm-specific risk is true?
A)Market risk is an unsystematic risk, whereas firm-specific risk is systematic risk.
B)Investors are not rewarded for taking market risk, whereas they are rewarded for taking firm-specific risk.
C)Market risk is a diversifiable risk, whereas firm-specific risk is a nondiversifiable risk.
D)Market risk is the relevant risk, whereas firm-specific risk is an irrelevant risk.
E)Market risk includes a firm's default risk, whereas firm-specific risk includes economic risk.

Question

Quizplus · Accepted Answer

Market risk, also known as systematic risk, affects the entire market and cannot be eliminated through diversification. It is considered relevant because it impacts all investments. Firm-specific risk, or unsystematic risk, can be diversified away by holding a broad portfolio of assets, making it less relevant to a well-diversified investor.

Which of the Following Statements About Market Risk and Firm-Specific