It Is Important to Understand That Business-Specific (Unsystematic)risk Is Not

question 166

Multiple Choice

It is important to understand that business-specific (unsystematic) risk is not included in the capital asset pricing model, because beta measures only market (systematic) risk. The underlying assumption is that:

• A)we don't need to worry about business-specific risk in portfolios because it's diversified away.
• B)we can't measure business-specific risk so it's useless to worry about it.
• C)business-specific risk is usually small compared with market risk.
• D)All of the above

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Definitions:

Mantle

The thick layer of the Earth located between the crust and the core, composed of silicate rocks rich in magnesium and iron.

Central Zone

A term that can refer to the central area of a geological feature, a city, or a defined area, known for its significance or distinguishing characteristics.

Regional Elevations

Variations in height or altitude of an area's surface within a specific region, reflecting its topography.

Dense Crust

Refers to parts of the Earth's crust that are made up of heavier, denser materials, often found in oceanic crust compared to continental.