Which of the following statements about market risk and firm-specific risk is true?
A. Market risk is an unsystematic risk, whereas firm-specific risk is systematic risk.
B. Investors are not rewarded for taking market risk, whereas they are rewarded for taking firm-specific risk.
C. Market risk is a diversifiable risk, whereas firm-specific risk is a nondiversifiable risk.
D. Market risk is the relevant risk, whereas firm-specific risk is an irrelevant risk.
E. Market risk includes a firm's default risk, whereas firm-specific risk includes economic risk.
Answer: D
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