It Is Important to Understand That Business-Specific (Unsystematic)risk Is Not

Multiple Choice

It is important to understand that business-specific (unsystematic) risk is not included in the capital asset pricing model, because beta measures only market (systematic) risk. The underlying assumption is that:

A) we don't need to worry about business-specific risk in portfolios because it's diversified away.
B) we can't measure business-specific risk so it's useless to worry about it.
C) business-specific risk is usually small compared with market risk.
D) All of the above