Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 27 - Part IX - The Basic Tools of Finance - Problems and Applications - Page 582: 7

Answer

The firm-specific risk would demand a higher return by the company's shareholders.

Work Step by Step

The market risk is spread between all of the companies in the market. The firm-specific risk is placed only on one company. The market risk might increase the demanded return by shareholders. However, the firm-specific risk is only on one company, and the increased risk would warrant a higher return by the shareholders.
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