Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?
A) Adding more such stocks will reduce the portfolio's unsystematic,or diversifiable,risk.
B) Adding more such stocks will increase the portfolio's expected rate of return.
C) Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk.
D) Adding more such stocks will have no effect on the portfolio's risk.
E) Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk.

Question

Quizplus · Accepted Answer

Adding more randomly selected stocks will increase the diversification of the portfolio, reducing its unsystematic risk. However, it may not necessarily increase the expected rate of return or have an impact on systematic risk (beta coefficient).

Which of the Following Statements Best Describes What You Should