An Increase in Nondiversifiable Risk Would ________

question 15

Multiple Choice

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

---

Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, showing the impact of fixed costs on earnings.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from gross profit, not including non-operating income and expenses, interest, and taxes.

Break-even Point

A situation where overall expenses and earnings balance out, leaving no profit or deficit.

Fixed Expenses

Recurring costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.