If a person diversifies her stock portfolio, then:
A) the expected return of her portfolio will increase.
B) the risk of her portfolio will decrease.
C) both the risk and expected return of her portfolio will increase.
D) neither the risk nor the expected return of her portfolio will change.

Question

Quizplus · Accepted Answer

Diversification of a stock portfolio can decrease risk as it reduces the impact of any one company or industry's performance on the overall portfolio. However, it does not necessarily guarantee an increase in expected return as it depends on the specific stocks chosen and market performance.

If a Person Diversifies Her Stock Portfolio, Then