Dakota rearranges her portfolio so that it has a higher average return. In doing this rearranging, she
A)raised both firm-specific risk and market risk.
B)raised firm-specific risk, but not market risk.
C)raised market risk, but not firm-specific risk.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

By rearranging her portfolio, Dakota is likely to have shifted her investments towards riskier assets with higher potential returns, thus raising firm-specific risk. However, she did not necessarily change the overall exposure of her portfolio to market risk, which is determined by the market as a whole, not the individual assets she holds. Therefore, she did not raise market risk.

Dakota Rearranges Her Portfolio So That It Has a Higher