Answer (B) is correct . Systematic risk, also called market risk and undiversifiable risk, is the risk of the stock market as a whole. Some conditions in the national economy affect all businesses, which is why equity prices so often move together. The effect of an individual security on the volatility of a portfolio is measured by its sensitivity to movements by the overall market. This sensitivity is stated in terms of a stock’s beta coefficient. An?average-risk stock has a beta of 1.0 because its returns are perfectly positively correlated with those on the market portfolio.
Answer (A) is incorrect because A beta of less than 1.0 means that the market, or systematic, risk is lower than that of the market portfolio.
Answer (C) is incorrect because Unsystematic risk is the risk that is influenced by an individual firm’s policies and decisions. The beta does not concern unsystematic risk.
Answer (D) is incorrect because Only a portion of the risk, not the total risk, is higher than that of the market portfolio.
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