Which of the following statements is CORRECT?
A) An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks.
B) The higher the correlation between the stocks in a portfolio,the lower the risk inherent in the portfolio.
C) It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock.
D) Once a portfolio has about 40 stocks,adding additional stocks will not reduce its risk by even a small amount.
E) An investor can eliminate virtually all diversifiable risk if he or she holds a very large,well-diversified portfolio of stocks.

Question

Quizplus · Accepted Answer

Diversifiable risk, also known as unsystematic risk, can be eliminated by holding a well-diversified portfolio of stocks. As the number of stocks in the portfolio increases, the unsystematic risk decreases until it is virtually eliminated in a very large, well-diversified portfolio. However, market risk, also known as systematic risk, cannot be eliminated through diversification, as it is inherent in the overall market or segment of the market that the stocks are part of.

Which of the Following Statements Is CORRECT