The beta of the market a is greater than 1 b is less

39. The beta of the market
(a) is greater than 1.
(b) is less than 1.
(c) is 1.
(d) cannot be determined.
Answer: C
Level of Difficulty: 1
Learning Goal: 5
Topic: Beta and Systematic Risk
40. Risk that affects all firms is called
Level of Difficulty: 1
Learning Goal: 5
Topic: Diversifiable and Nondiversifiable Risk
41. The portion of an asset’s risk that is attributable to firm-specific, random causes is called
Level of Difficulty: 2
Learning Goal: 5

Chapter 5 Risk and Return 237
Topic: Systematic and Unsystematic Risk
42. The relevant portion of an asset’s risk attributable to market factors that affect all firms is called
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
Level of Difficulty: 2
Learning Goal: 5
Topic: Systematic and Unsystematic Risk
45. Strikes, lawsuits, regulatory actions, and increased competition are all examples of
Level of Difficulty: 2
Learning Goal: 5
Topic: Diversifiable and Nondiversifiable Risk

238 Gitman • Principles of Finance, Eleventh Edition
46. War, inflation, and the condition of the foreign markets are all examples of
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