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

Question

Quizplus · Accepted Answer

Nondiversifiable risk cannot be eliminated by diversification, so an increase in nondiversifiable risk would increase the systematic risk of the asset, which is measured by beta. As a result, the required return would increase to compensate for the higher risk.

An Increase in Nondiversifiable Risk Would ________