Which of the following statements is correct? A If a firm\'s stockholders are we

Question

Which of the following statements is correct?   

A If a firm's stockholders are well diversified, we know from theory and from studies of market behavior that corporate risk is not important. B Undiversified stockholders, including the owners of small businesses, are more concerned about corporate risk than market risk C Empirical studies of the determinants of required rates of return (k) have found that only market risk affects stock prices D Market risk is important but does not have a direct effect on the stock price because it only affects beta E Market risk does not play any role in determining the rate of return on an investment.

Explanation / Answer

In this case A and B are correct

As when a stockholder is well diversified as per theory market risk wont affect him that much. Also if a stockholder is undiversified, corporate risk is more of a concern than amrket risk.

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