A project has a high correlation with the firm's other projects. It also has a low CAPM beta. The project will have ________ corporate risk and ________ market risk.
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A. B. C. D.B
Corporate risk measures the impact of a project on the corporate earnings while market risk measures its effect on the systematic risk of the stock. Since the project's returns are highly correlated with those of the firm's other projects, it will increase the earnings volatility. At the same time, due to low beta, the project will have a low market risk.