The portion of an asset’s risk that is attributable to firm-specific, random causes is called

41. The portion of an asset’s risk that is attributable to firm-specific, random causes is
called
(a) unsystematic risk.
(b) nondiversifiable risk.
(c) systematic risk.
(d) None of the above.
Answer: A
Level of Difficulty: 2
Learning Goal: 5
Topic: Systematic and Unsystematic Risk
42. The relevant portion of an asset’s risk attributable to market factors that affect all firms
is called
(a) unsystematic risk.
(b) diversifiable risk.
(c) systematic risk.
(d) None of the above.
Answer: C
Level of Difficulty: 2
Learning Goal: 5
Topic: Systematic and Unsystematic Risk
43. ______ risk represents the portion of an asset’s risk that can be eliminated by
combining assets with less than perfect positive correlation.
(a) Diversifiable
(b) Nondiversifiable
(c) Systematic
(d) Total
Answer: A
Level of Difficulty: 2
Learning Goal: 5
Topic: Diversifiable and Nondiversifiable Risk
44. Unsystematic risk is not relevant, because
(a) it does not change.
(b) it can be eliminated through diversification.
(c) it cannot be estimated.
(d) it cannot be eliminated through diversification.
Answer: B
Level of Difficulty: 2
Learning Goal: 5
Topic: Systematic and Unsystematic Risk
45. Strikes, lawsuits, regulatory actions, and increased competition are all examples of
(a) diversifiable risk.
(b) nondiversifiable risk.
(c) economic risk.
(d) systematic.
Answer: A
Level of Difficulty: 2
Learning Goal: 5
Topic: Diversifiable and Nondiversifiable Risk

46. War, inflation, and the condition of the foreign markets are all examples of
(a) diversifiable risk.
(b) nondiversifiable risk.
(c) economic risk.
(d) unsystematic.
Answer: B
Level of Difficulty: 2
Learning Goal: 5
Topic: Diversifiable and Nondiversifiable Risk
47. A beta coefficient of +1 represents an asset that
(a) is more responsive than the market portfolio.
(b) has the same response as the market portfolio.
(c) is less responsive than the market portfolio.
(d) is unaffected by market movement.
Answer: B
Level of Difficulty: 2
Learning Goal: 5
Topic: Beta and Systematic Risk
48. A beta coefficient of –1 represents an asset that
(a) is more responsive than the market portfolio.
(b) has the same response as the market portfolio but in opposite direction
(c) is less responsive than the market portfolio.
(d) is unaffected by market movement.
Answer: B
Level of Difficulty: 2
Learning Goal: 5
Topic: Beta and Systematic Risk
49. A beta coefficient of 0 represents an asset that
(a) is more responsive than the market portfolio.
(b) has the same response as the market portfolio.
(c) is less responsive than the market portfolio.
(d) is unaffected by market movement.
Answer: D
Level of Difficulty: 2
Learning Goal: 5
Topic: Beta and Systematic Risk
50. An investment banker has recommended a $100,000 portfolio containing assets B, D,
and F. $20,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested
in asset D, with a beta of 2.0; and $30,000 will be invested in asset F, with a beta of 0.5.
The beta of the portfolio is
(a) 1.25
(b) 1.33
(c) 1.45
(d) unable to be determined from the information provided.
Answer: C
Level of Difficulty: 3
Learning Goal: 5
Topic: Portfolio Beta (Equation 5.7)