Edgar decided to increase the number of stocks in his portfolio.His actions reduced
A)both the firm-specific risk and the market risk of his portfolio.
B)the firm-specific risk, but not the market risk of his portfolio.
C)the market risk, but not the firm-specific risk of his portfolio.
D)neither the aggregate nor the firm-specific risk of his portfolio.

Question

Quizplus · Accepted Answer

By increasing the number of stocks in his portfolio, Edgar diversified his investments and reduced firm-specific risk, which is the risk of losing money due to factors that only affect that particular company. However, the market risk, which is the risk of losing money due to factors affecting the overall market, is not reduced by adding more stocks, so it remains unchanged.

Edgar Decided to Increase the Number of Stocks in His