We routinely assume that investors are risk-averse return-seekers; i.e., they like returns and dislike risk. If so, why do we contend that only systematic risk is important? (Alternatively, why is total risk not important to investors, in and of itself?)

This question, of course, gets to the point of the chapter: That rational investors will diversify away as much risk as possible. From the discussion in the text, most students will also have picked up that it is quite easy to eliminate diversifiable risk in practice, either by holding portfolios with 15 to 25 assets, or by holding shares in a diversified mutual fund. And, as noted in the text, there will be no return for bearing diversifiable risk, thus, total risk is not particularly important to a diversified investor.