Ben decided to increase the number of stocks in his portfolio. In doing so, Ben reduced
A)both the firm-specific risk and the market risk of his portfolio.
B)the firm-specific risk, but not the market risk of his portfolio.
C)the market risk, but not the firm-specific risk of his portfolio.
D)neither the market risk nor the firm-specific risk of his portfolio.

Question

Quizplus · Accepted Answer

Increasing the number of stocks in a portfolio helps to reduce the firm-specific risk but has no impact on the market risk. The market risk is determined by the overall behavior of the market, while the firm-specific risk is unique to each company and can be minimized through diversification. By holding a larger number of stocks in a portfolio, an investor can spread their risk and reduce the impact of any one company's poor performance on their overall returns.

Ben Decided to Increase the Number of Stocks in His