1. An asset’s risk (sensitivity) related to the overall economy and market movement is called its ________________
A) unsystematic risk.
B) nondiversifiable risk.
C) idiosyncratic risk.
D) total risk.
2. Regarding the risk-and-return discussion, find the incorrect statement below.
A) The nondiversifiable risk of an asset is measured by its beta coefficient (b).
B) An asset’s risk premium divided by its b is called the reward-to-risk ratio.
C) Market risk premium is the difference between the expected return on the market portfolio and the risk-free rate.
D) The Security Market Line (SML) shows the linear relation between an asset's expected return and its variance.