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) Market risk is not rewarded with additional returns, whereas firm-specific risk is rewarded with additional returns.
C) Market risk is a diversifiable risk, whereas firm-specific risk is a nondiversifiable risk.
D) Market risk is a relevant risk, whereas firm-specific risk is an irrelevant risk.
E) Market risk includes default risk, whereas firm-specific risk includes maturity risk.

Question

Quizplus · Accepted Answer

Market risk is relevant because it affects all firms and cannot be diversified away, while firm-specific risk can be diversified and is thus considered irrelevant in a diversified portfolio.

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