An increase in nondiversifiable risk
A) would have no effect on the beta and would, therefore, cause no change in the required return.
B) would cause an increase in the beta and would increase the required return.
C) would cause an increase in the beta and would lower the required return.
D) would cause a decrease in the beta and would, therefore, lower the required rate of return.

Question

Quizplus · Accepted Answer

Non-Diversifiable risk cannot be diversified out so it would increase the risk of the portfolio, requiring higher returns.

An Increase in Nondiversifiable Risk