Answer (B) is correct . Prices of all stocks, even the value of portfolios, are correlated to some degree with broad swings in the stock market. Market risk is the risk that changes in a stock’s price will result from changes in the stock market as a whole. Market risk is commonly referred to as nondiversifiable risk.
Answer (A) is incorrect because Purchasing-power risk is the risk that a general rise in the price level will reduce the quantity of goods that can be purchased with a fixed sum of money.
Answer (C) is incorrect because Nonmarket risk is the risk that is influenced by an individual firm’s policies and decisions. Nonmarket risk is diversifiable since it is specific to each firm.
Answer (D) is incorrect because Interest-rate risk is the risk that the value of an asset will fluctuate due to changes in the interest rate.
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