For a diversified portfolio including a large number of stocks, the:
A)weighted average expected return goes to zero.
B)weighted average of the betas goes to zero.
C)weighted average of the unsystematic risk goes to zero.
D)return of the portfolio goes to zero.
E)return on the portfolio equals the risk-free rate.

Question

Quizplus · Accepted Answer

In a diversified portfolio, unsystematic risk (or idiosyncratic risk) is minimized or eliminated as it is specific to individual stocks and can be offset by holding a large number of different stocks.

For a Diversified Portfolio Including a Large Number of Stocks