If a stock portfolio is well diversiﬁed, then the portfolio variance:
A) Will equal the variance of the most volatile stock in the portfolio.
B) May be less than the variance of the least risky stock in the portfolio.
C) Must be equal to or greater than the variance of the least risky stock in the portfolio.
D) Will be a weighted average of the variances of the individual securities in the portfolio.
E) Will be an arithmetic average of the variance of the individual securities in the portfolio.

Question

Quizplus · Accepted Answer

In a well-diversified portfolio, unsystematic risk is minimized, and the portfolio variance can be less than the variance of the least risky stock due to the benefits of diversification.

If a Stock Portfolio Is Well Diversiﬁed, Then the Portfolio